What are some examples of typical investments that may yield capital gains and/or losses?

Typical investments that may yield capital gains and losses include equities or stocks, mutual funds, bonds and bond funds, precious metals, and real property. Investments may generate income through price changes, dividend distributions, interest, rents, or royalties. It is also important to note that you do not generate capital gains while you hold an asset. The gain or loss is triggered only when you sell the asset.

What about high-income taxpayers who earn short- or long-term capital gains? Are there additional considerations?

Under current tax laws, depending on your income, you may also be responsible for an additional 3.8% unearned income Medicare contribution tax (net investment income tax) applied to capital gains, so it is best to understand the tax consequences for any investment, and speak to a competent tax professional when you incur gains and losses from your investments.

Where do I report capital gains and losses when I file my taxes?

When you file your taxes and report any capital gains or losses during a tax reporting year, you file IRS Form 1040, Schedule D, "Capital Gains and Losses," and Form 8949, Sales and Other Dispositions of Capital Assets, along with your tax return.

Under what circumstance could I pay more than a 20% capital gains tax?

According to the IRS, you may be responsible to pay more than 20% capital gains tax if you fall under any of three exceptions: The taxable part of a gain from selling Section

Must I pay capital gains tax on the sale of my principal residence?

No. The Internal Revenue Service still allows homeowners to exclude gains ranging from $250,000 to $500,000 depending on your filing status under the Internal Revenue Code, Section 121. Because this gain is excluded for regular income tax purposes, it is also excluded for purposes of determining net investment income.

1202 qualified small business stock is taxed at a maximum 28% rate; net capital gains from selling collectibles (such as coins or art) are taxed at a maximum 28% rate; and the portion of any unrecaptured Section 1250 gain from selling Section 1250 real property is taxed at a maximum 25% rate.

What are some additional considerations?

The IRS recommends you make estimated tax payments (either monthly or quarterly) on your capital gains. Please see IRS Publication 505, Tax Withholding and Estimated Tax, for additional information.

What is a "cost basis"?

A cost basis is the amount of money you use to purchase an item or asset that you own.

May I deduct capital losses on the sale of my personal property?

No. You may only deduct capital losses on the sale of investment property, not on property purchased for personal use.

What is the maximum I can claim in a year as a capital loss?

After you total all your capital losses for a year, you may only apply $3,000 each year for a loss until the total loss is fully utilized. For example, if you lost $9,000 on a stock investment, you may claim $3,000 in losses each year for three years.

What happens if my losses are larger than my gains in any tax year?

If your losses are greater than your gains, you may claim the lesser of either $3,000 ($1,500 if you are married filing separately) or your total net loss as shown on line 16 of IRS Form 1040, Schedule D. If your net capital loss is more than this limit, you may carry the loss forward to later years. Please use the Capital Loss Carryover Worksheet found in either IRS Publication 550, "Investment Income and Expenses", or IRS Form 1040, Schedule D Instructions, "Capital Gains and Losses", to figure the amount eligible to carry forward.

 
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