Reporting Capital Gains

If you own something and use it for personal or investment purposes, it is a capital asset. If you sell a capital asset, the difference of the adjusted basis of the asset and the sale will lead to either a capital gain or loss. This is reported on Schedule D of your federal tax return. Form 1099-B will show transactions like the sales of stocks, bonds or other property and must be reported on your tax return

Here are examples of capital assets:

• Stocks or bonds
• Your home/business property
• Household furnishings
• Coin or stamp collections
• Jewelry/Gold/silver or any other metal

Long-term vs Short-term

Capital gains and losses are either long-term or short-term. It is dependent on how long you hold the asset. Here are the distinguishing factors today:

• If you hold an asset for more than one year before disposing of it, it is long-term
• Once you hold it less than a year, it is short-term

What is a basis?

Your basis is your cost plus improvements. You should keep record of your purchase price, including commissions, changes to your basis, non-dividend distributions on stock, and stock splits.

If you sell the asset for more than your basis, you have a capital gain. However, if you sell the asset for less than your basis, you have a capital loss.

Limit on the deduction and carryover of losses

Although capital gains are taxable, only a capital loss on an investment or business property is deductible. If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income in any one tax year is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss. If your net capital loss is more than this limit, you can carry the loss forward to later years until the amount is exhausted. The carry forward amount cannot exceed $3,000 per tax year.

This entry was posted on Friday, November 13th, 2020 at 12:44 am and is filed under Deductions, Income. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.