Capital Gains

Any asset you own for investment purposes is considered a capital asset.  This can include, stocks, bonds, real estate, or even a baseball card.  When you acquire this asset, the cost is considered to be the basis and the difference between the sales price and the basis is known as a capital gain or capital loss.  Capital gains and losses are recorded on your 1040, schedule D and are taxed differently based on whether they are short-term or long-term capital gains.

Long-Term Versus Short-Term Capital Gains


Profits are considered to be long term if there is over 1 year beteween the purchase and sale of that asset.  If the asset is held for less than a year, it is designated as short term for tax reporting purposes.  Long term capital gains are taxed at a maximum of 15% with the exception of gains from small business stock and collectibles which are taxed at a maximum of 28%.  Now there is another exception; for the years of 2008, 2009, and 2010 long term capital gains will not be taxed for those who are in the 10% to 15% tax bracket.  Short term capital gains are taxed at your ordinary income tax rate which can be up to 35%.

Capital Loss Deductions


The IRS allows for a deduction of $3,000 per year on capital losses.  Capital losses in excess of this amount will be carried forward to the next year, in which another $3,000 can be deducted again.  Short term capital gains may offset short term capital losses while longer term capital gains can offset long term capital losses.
Tim Ord
Ord Oracle

Tim Ord is a technical analyst and expert in the theories of chart analysis using price, volume, and a host of proprietary indicators as a guide...

Tradingsim.com
Day Trading Simulator

Tradingsim.com provides the ability to simulate day trading 24 hours a day from anywhere in the world. TradingSim provides tick by tick data for...

Send this article to a friend.

Enter multiple addresses on separate lines or separate them with commas.