Capital Gains And Losses

Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. The IRS says that when you sell a capital asset, such as stocks, 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. While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property.

A “paper loss” – a drop in an investment’s value below its purchase price – does not qualify for the deduction. The loss must be realized through the capital asset’s sale or exchange.

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. For more information on the tax rates, refer to IRS Publication 544, “Sales and Other Dispositions of Assets.”

If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately). The loss can be carried forward to later years to reduce capital gains or ordinary income until the balance of these losses is used up. The “Capital Loss Carryover Worksheet” in the instructions for Schedule D helps figure the amount of loss that can be carried forward to later years.

Capital gains and losses, including losses carried forward, are reported on Schedule D, “Capital Gains and Losses,” and then transferred to line 13 of Form 1040. If you have a taxable capital gain, you may be required to make estimated tax payments. See Publication 505, “Tax Withholding and Estimated Tax,” for information on estimated tax.

Additional information on capital gains and losses is available in Publications 550, “Investment Income and Expenses,” and 17, “Your Federal Income Tax.” You may download the publications from the IRS Web site at IRS.gov or order them by calling 1-800-TAX-FORM (1-800-829-3676).

Taxpayers who have experienced investment or other types of financial losses should also check out these other IRS publications:

– 564, “Mutual Fund Distributions”
– 547, “Casualties, Disasters, and Thefts”
– 527, “Residential Rental Property (Including Rental of Vacation Homes)” and
– 536, “Net Operating Losses (NOLs) for Individuals, Estates and Trusts”


This daily Tax Tip has been provided by the IRS

Note: These tips are provided to help trigger ideas on ways to minimize your tax burden, not as a substitute for professional advice. There is no "one-size-fits-all" answer - each taxpayer's situation is different. You should contact your tax preparer to determine together how this may affect your unique situation.

You may like these other stories...

IRS must take oath on Lerner emails: judgeMackenzie Weinger of Politico reported on Thursday that a federal judge ordered the IRS to explain under oath how it lost emails connected to Lois Lerner, the ex-IRS official at the...
The Republican-controlled House of Representatives passed a bill on Friday morning that would permanently extend the bonus depreciation tax break for businesses.The measure, HR 4718, which was crafted by Representative Pat...
The Republican-led House of Representatives is expected to pass a bill this week that would permanently extend the bonus depreciation tax break. But don’t expect President Obama to sign it.The Obama administration said...

Upcoming CPE Webinars

Jul 16
Hand off work to others with finesse and success. Kristen Rampe, CPA will share how to ensure delegated work is properly handled from start to finish in this content-rich one hour webinar.
Jul 17
This webcast will cover the preparation of the statement of cash flows and focus on accounting and disclosure policies for other important issues described below.
Jul 23
We can’t deny a great divide exists between the expectations and workplace needs of Baby Boomers and Millennials. To create thriving organizational performance, we need to shift the way in which we groom future leaders.
Jul 24
In this presentation Excel expert David Ringstrom, CPA revisits the Excel feature you should be using, but probably aren't. The Table feature offers the ability to both boost the integrity of your spreadsheets, but reduce maintenance as well.