Capital Assets – Gains And Losses For Taxes

Capital is a unique term as regards to taxes. If capital gains value, you pay a tax. If it loses it, you can write at least some of the loss off.

Capital Assets – Gains and Losses for Taxes 

Virtually everything you own is a capital asset.  This is the case whether you use it for business purposes or personal use.  The internal revenue service is very interested in your capital assets.  Why is this?  Because the IRS likes to tax the full gains while only giving you a small break on any lost value.  Specifically, you have to report and pay taxes on gains in value of your capital assets when you sell them.  Unfortunately, you only get to claim a loss on capital assets if it is an investment property such as stocks.  It may not seem fair, but that is how the cookie crumbles nowadays! 

The following are several tax issue highlights on capital assets: 

1.   Typically, you are reporting gains and losses on capital assets, you would be subtracting the price you purchased it for from the price you sold it for.  This calculation is reported to the IRS on Schedule D, which should be attached to your 1040 tax return form.  Lucky you! 

2.   Capital gains and losses are classified as long-term or short-term.  The classification breaks down on…tad a, how long you’ve owned the capital asset in question before selling it to somebody else.  If it has been less than a year, it is considered to be a short term gain or short term loss.  If you hold on to it for more than a year, then you are looking at a long term gain or a long term loss when reporting taxes.  Each of these classifications requires different tax computations and you will end up paying different amounts of tax. 

3.   In a little good news, you are usually going to be paying less tax on a capital asset gain.  For the 2010 tax year, the capital gains rate ranged anywhere from 0% for low income individuals on some or all net capital gain, to as high as a painful 28%. 

4.   Although the IRS is happy to tax all of your capital gains, it has different views towards losses.  You can deduct capital losses, but only up to $3,000 yearly, or $1,500 if you’re married filing separately. 

We all have capital assets, even if we don't realize it.  Be aware, however, that the IRS is familiar with this, so make sure you report your gains and losses.