As you continue the process of collecting your tax documents and filing your returns, you may start hearing terms you don’t fully know the meaning of — capital gains tax being one of them. You can’t possibly file your taxes correctly if you don’t know what certain terms mean, so here’s the low down on capital gains tax.
What Are Capital Gains?
The IRS considered capital gains any profits made from capital assets such stock sales, mutual fund sales, or home sales. The tax itself is only applied when the assets are sold, not while it is held by an investor.
The Two Kinds of Capital Gains:
Long-Term Gains
These are profits made from assets held longer than 12 months before they are sold by the investor. As per the American Taxpayers Relief Act of 2012, you can be taxed on these gains anywhere between 5% and 20% at capital gains tax rates.
Short-Term Gains
These are profits made when the assets are sold before the investor has owned it for a year and are taxed at ordinary income tax rates rather than at capital gains tax rates.
How to Calculate Your Capital Gains:
To figure out if you’ve made a capital gain (or loss), you just subtract the cost of the sold asset from its sale price. If the cost is less than the sales price, you made a capital gain. If it is more, you suffered a capital loss. The good news there is that you can deduct up to $3,000 in capital losses from your income. Any more than that will carry over to the following tax year.
Still unsure how to file your capital gains tax? Let the team at American Investment Planners LLC been your resource this tax season. We have experienced many of the same situations our clients have, so we know exactly what solutions to offer. For more information about our tax planning services, please visit us on our website or give us a call at (516) 932-5130.
*Cadaret, Grant and its representatives do not provide tax or legal advice. Tax advice provided solely by American Investment Planners LLC.
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