Capital gains tax is a type of income tax levied on individuals and corporations when they dispose of capital assets for a profit. Capital assets include stocks, bonds, real estate, and certain other investments.
Rate of tax:
- 15% for most taxpayers: This applies to gains up to $250,000 for single filers and up to $500,000 for married couples filing jointly.
- 20% for gains above $250,000: This applies to gains above $250,000 for single filers and above $500,000 for married couples filing jointly.
- 0% for certain investments: This includes gains from qualified retirement plans, municipal bonds, and certain other investments.
Types of capital gains:
- Short-term capital gains: These are gains from the sale of capital assets that are held for less than a year.
- Long-term capital gains: These are gains from the sale of capital assets that are held for one year or more.
Exclusions:
- $2,000 for single filers: This applies to gains from the sale of personal-use property.
- $5,000 for married couples filing jointly: This applies to gains from the sale of personal-use property.
Reporting requirements:
- If you have capital gains of $600 or more, you are required to file Form 1099-Capital Gains and Dividend Income.
- If you have capital gains of $10,000 or more, you are required to file Form 1099-INTL.
Additional rules:
- Cost basis adjustment: You can subtract your cost basis (the original cost of the asset) from the sale price to calculate your capital gain.
- Ceasing and desisting rule: If you cease being a dealer of securities for a specified period, you may be exempt from paying capital gains tax on gains from the sale of securities.
- Wash sales: If you sell an asset for a loss and then repurchase it within a certain time frame, you may not have to pay capital gains tax on the gain.
Disclaimer: This information is provided for informational purposes only and should not be considered tax advice. It is important to consult with a tax professional for personalized tax advice.
Updated on June 07, 2023
