Capital Gains Tax

Categories: Finance
  • A capital gains tax is incurred when a capital asset is sold for a profit. Conversely, a capital asset sold for a loss represents a capital loss. The term "capital asset" is defined in the Internal Revenue Code as business or nonbusiness property held by a taxpayer, other than 8 specific categories of assets that are excluded from treatment as capital assets. The most notable exceptions are business inventory, depreciable business personal property and business real property, and copyrights, literary, musical, or artistic compositions created by the taxpayer.


    The capital gains tax is imposed on capital gains incurred during a taxable year. Thus, gain from the sale of a capital asset is not reported on the income tax return as income. It is reported in a different section of the return. While the policy may be debatable, the tax rates for capital gains are lower than the tax rates for ordinary income. Capital losses can be used to offset capital gains, but they are not deductible from ordinary income.


    Examples of capital assets are a personal residence and any nonbusiness real property, stocks and bonds, automobiles, boats, jewelry, and nonbusiness personal property. Theses are common assets are regularly bought and sold. Thus, while the advice of a tax attorney or CPA may be desirable, all lay persons can have a basic understand of the taxation of capital gains and, perhaps more important in today's economy, capital losses.

  • Related Pages on Mahalo

  • On Twitter Powered by Twitter

About this page

  • Page Views
    0
What is this?

Page Manager

What is this?
This page currently has no vertical manager.