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10 Facts About Capital Gains and Losses Affecting Your Federal Income Tax
Capital gains and losses might have an impact on your federal income tax return.
Here are 10 facts from the Internal Revenue Service (IRS) about gains and losses
and how they could affect your tax situation.
1. Almost everything you own and use for personal purposes, pleasure or
investment is a capital asset.
2. When you sell a capital asset, the difference between the amount you sell
it for and your basis -- which is usually what you paid for it -- is a capital
gain or a capital loss.
3. You must report all capital gains.
4. You may deduct capital losses only on investment property, not on property
held for personal use.
5. Capital gains and losses are classified as long-term or short-term,
depending on how long you hold the property before you sell it. If you hold it
more than one year, your capital gain or loss is long-term. If you hold it
one year or less, your capital gain or loss is short-term.
6. If you have long-term gains in excess of your long-term losses, you have a
net capital gain to the extent your net long-term capital gain is more than your
net short-term capital loss, if any.
7. The tax rates that apply to net capital gain are generally lower than the
tax rates that apply to other income. For 2009, the maximum capital gains rate
for most people is15%. For lower-income individuals, the rate may be 0% on some
or all of the net capital gain. Special types of net capital gain can be taxed
at 25% or 28%.
8. If your capital losses exceed your capital gains, the excess can be
deducted on your tax return and used to reduce other income, such as wages, up
to an annual limit of $3,000, or $1,500 if you are married filing separately.
9. If your total net capital loss is more than the yearly limit on capital
loss deductions, you can carry over the unused part to the next year and treat
it as if you incurred it in that next year.
10. Capital gains and losses are reported on Schedule D, Capital Gains
and Losses, and then transferred to line 13 of Form 1040.
For more information about reporting capital gains and losses, see the
Schedule D instructions, Publication 550, Investment Income and Expenses or
Publication 17, Your Federal Income Tax. All forms and publications are
available at http://www.IRS.gov or by calling
800-TAX-FORM (800-829-3676).
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