
To help you better understand capital gains and losses, here are 10 facts everyone should know:
- Almost everything you own and use for personal or investment purposes is a capital asset.
- Capital gain or loss is the difference between your basis and the amount you receive when you sell that asset. Basis is typically what you paid to purchase the asset.
- You can deduct losses on the sale of investment property but not on the sale of personal-use property.
- Capital gains and losses are either short-term (owned less than 1 year) or long-term.
- You must include all capital gains in your taxable income.
- 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.
- If you have a net capital loss, you are limited to deducting $3,000 per year if you file as married filing jointly and $1,500 if you file separately or are single.
- You may carry excess losses over to the next year.
- Capital gains and losses for nonbusiness assets are reported on Form 8949 and summarized on Schedule D.
- Tax rates on capital gains are typically lower than ordinary income tax rates.
This is a short summary of the topic. If you are interested in more information about capital gains and losses, see IRS Publication 550 and the Schedule D instructions or contact your accountant.