Information provided by irs.gov
When you sell a capital asset, the sale normally results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment. Be aware of the following regarding capital gains and losses:
- Capital Assets. Capital assets include property such as your home or car, as well as investment property, such as stocks and bonds.
- Gains and Losses. A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.
- Net Investment Income Tax. You must include all capital gains in your income and you may be subject to the Net Investment Income Tax (at a rate of 3.8%) if your income is above certain amounts.
- Deductible Losses. You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.
- Limit on Losses. If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.
- Carryover Losses. If your total net capital loss is more than the limit you can deduct, you can carry it over to next year’s tax return.
- Long and Short Term. Capital gains and losses are treated as either long-term or short-term, depending on how long you held the property (one year or less, the gain or loss is short-term).
- Net Capital Gain. If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain.
- Tax Rate. The tax rate on a net capital gain usually depends on your income. The maximum tax rate on a net capital gain is 20%. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain.
- Forms to File. You often will need to file Form 8949, Sales and Other Dispositions of Capital Assets, and Schedule D, Capital Gains and Losses, with your tax return.
