Capital Gains Tax: Understanding Long-term and Short-term

What is Capital Gains Tax?

• A type of tax levied on the profit made from the sale of an asset, such as real estate, stocks, bonds, or mutual funds.
• The profit is calculated by subtracting the original purchase price (cost basis) from the sale price.

Types of Capital Gains Tax

• Long-term capital gains tax: Applied to assets held for more than one year.
  • Tax rates: 0%, 15%, or 20%, depending on income tax bracket and filing status.
• Short-term capital gains tax: Applied to assets held for one year or less.
  • Taxed as ordinary income, at the taxpayer's income tax rate.

Capital Gains Tax Rates

• 0% rate: Applies to long-term capital gains for taxpayers in the 10% and 12% income tax brackets.
• 15% rate: Applies to long-term capital gains for taxpayers in the 22%, 24%, 32%, and 35% income tax brackets.
• 20% rate: Applies to long-term capital gains for taxpayers in the 37% income tax bracket.

Exemptions and Deductions

• Primary Residence Exemption: Up to $250,000 ($500,000 for married couples) of capital gains on the sale of a primary residence is exempt from taxation, if certain conditions are met.
• Capital Loss Deduction: Capital losses can be deducted from capital gains, reducing tax liability.

Reporting Capital Gains Tax

• Form 8949: Used to report sales and other dispositions of capital assets.
• Schedule D: Used to calculate and report capital gains and losses.

Other Considerations

• Wash Sale Rule: Disallows a loss on the sale of securities if substantially identical securities are purchased within 30 days.
• Like-Kind Exchanges: Allows for the deferral of capital gains tax on the exchange of certain business or investment properties.

Capital Gains Tax

• A tax levied on the profit made from the sale of an asset, such as real estate, stocks, bonds, or mutual funds
• Profit is calculated by subtracting the original purchase price (cost basis) from the sale price

Types of Capital Gains Tax

• Long-term capital gains tax: Applies to assets held for more than one year
  • Tax rates: 0%, 15%, or 20%, depending on income tax bracket and filing status
• Short-term capital gains tax: Applies to assets held for one year or less
  • Taxed as ordinary income, at the taxpayer's income tax rate

Capital Gains Tax Rates

• 0% rate: Applies to long-term capital gains for taxpayers in the 10% and 12% income tax brackets
• 15% rate: Applies to long-term capital gains for taxpayers in the 22%, 24%, 32%, and 35% income tax brackets
• 20% rate: Applies to long-term capital gains for taxpayers in the 37% income tax bracket

Exemptions and Deductions

• Primary Residence Exemption: Up to $250,000 ($500,000 for married couples) of capital gains on the sale of a primary residence is exempt from taxation, if certain conditions are met
• Capital Loss Deduction: Capital losses can be deducted from capital gains, reducing tax liability

Reporting Capital Gains Tax

• Form 8949: Used to report sales and other dispositions of capital assets
• Schedule D: Used to calculate and report capital gains and losses

Other Considerations

• Wash Sale Rule: Disallows a loss on the sale of securities if substantially identical securities are purchased within 30 days
• Like-Kind Exchanges: Allows for the deferral of capital gains tax on the exchange of certain business or investment properties