Here are ten facts from the IRS about gains and losses and how they can affect
your Federal income tax return.
1.
Almost everything you own
and use for personal purposes, pleasure or investment is a capital asset.
2.
When you sell a capital
asset, the difference between the amount you sell it for and your basis – which
is usually what you paid for it – is a capital gain or a capital loss.
3.
You must report all capital
gains.
4.
You may deduct capital
losses only on investment property, not on property held for personal use.
5.
Capital gains and losses
are classified as long-term or short-term, depending on how long you hold the
property before you sell it. If you hold it more than one year, your capital
gain or loss is long-term. If you hold it one year or less, your capital gain or
loss is short-term.
6.
If you have long-term gains
in excess of your long-term losses, you have a net capital gain to the extent
your net long-term capital gain is more than your net short-term capital loss,
if any.
7.
The tax rates that apply to
net capital gain are generally lower than the tax rates that apply to other
income. For 2010, the maximum capital gains rate for most people is 15%. For
lower-income individuals, the rate may be 0% on some or all of the net capital
gain. Special types of net capital gain can be taxed at 25% or 28%.
8.
If your capital losses
exceed your capital gains, the excess can be deducted on your tax return and
used to reduce other income, such as wages, up to an annual limit of $3,000, or
$1,500 if you are married filing separately.
9.
If your total net capital
loss is more than the yearly limit on capital loss deductions, you can carry
over the unused part to the next year and treat it as if you incurred it in that
next year.
10.
Capital gains and losses
are reported on Schedule D, Capital Gains and Losses, and then transferred to
line 13 of Form 1040.
For more information about reporting capital gains and losses, see the Schedule
D instructions, Publication 550, Investment Income and Expenses or Publication
17, Your Federal Income Tax. All forms and publications are available at
http://www.irs.gov or by calling 800-TAX-FORM (800-829-3676).
Links:
-
Publication 17, Your Federal Income Tax (PDF
2015.9K)
-
Publication 550, Investment Income and Expenses (PDF
516K)
