What are capital gains? What are capital losses? These are common questions people may ask their tax attorney. The article below has been drafted by a Denver tax attorney at The McGuire Law Firm to state some facts regarding capital gains and capital losses.
The sale of a capital assets results in a capital gain or a capital loss. A capital asset could be defined as property you use for investment purposes and sometimes personal purposes. For example, if you purchased Microsoft stock, this stock would be a capital asset and the sale of the stock would result in a capital loss or capital gain. A capital asset also could include your house, car or other property.
Whether you have a capital gain or capital loss depends upon your basis in the property and what you receive when the property is sold or transferred. For example, if you purchased stock for $50, your basis in the stock would be $50. If you sold the stock for $75, you would have a capital gain or $25. If you sold the stock for $25, you would have a capital loss of $25 ($25). Whether or not the gain is long term or short term depends upon how long you held the property.
All capital gains will be included in your income. Beginning in 2013, there is an additional 3.8% tax on Net Investment Income to certain investment income for individuals, estates and trusts that have income above certain thresholds.
Capital losses on the sale of investment property can be deducted, but losses on the sale of personal property cannot be deducted.
If you hold the property for more than a year, the gain or loss is considered long term. If you hold the property for one year or less, the gain or loss is considered short term.
When long term capital gains are more than your long term capital losses, the difference is net long term capital gain. If you have more net long term capital gain than net short term capital loss, you have a net capital gain.
The tax rates that apply will depend upon your income and whether the gain was short or long term. In 2013, the maximum net capital gain tax increased from 15% to 20% for certain individuals with income above a certain threshold. 25% and 28% rates may also apply.
If your losses are greater than gains, you can deduct a loss on your tax return. The loss is limited to $3000 per year. If your loss is more than you can deduct in the current tax year, you can carry the loss forward to deduct in later years.
If you have questions regarding capital assets, a Denver tax attorney at The McGuire Law Firm can assist you with these questions and other tax issues.
Schedule a free consultation with a Denver tax attorney by contacting The McGuire Law Firm. Law offices in Denver and Golden Colorado.