Did you know
that almost everything you own and use for personal or investment purposes is a
capital asset? Capital assets include a home, household furnishings and stocks
and bonds held in a personal account.
When you sell a
capital asset, the difference between the amount you paid for the asset and its
sales price is a capital gain or capital loss. Here are 10 facts you should
know about how gains and losses can affect your federal income tax return.
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 only
deduct capital losses on investment property, not on personal-use property.
5. Capital gains
and losses are classified as long-term or short-term. If you hold the property
more than one year, your capital gain or loss is long-term. If you hold it one
year or less, the gain or loss is short-term.
6. If you have
long-term gains in excess of your long-term losses, the difference is normally
a net capital gain. Subtract any short-term losses from the net capital gain to
calculate the net capital gain you must report.
7. The tax rates
that apply to net capital gain are generally lower than the tax rates that
apply to other income. For 2013, the maximum capital gains rate is 20 percent;
however that rate only applies to taxpayers in the highest tax bracket (39.6%)
whose income exceeds $400,000 (single filers) or $450,000 (joint filers).
Taxpayers in the middle tax brackets pay a maximum of 15 percent. For taxpayers
in the lowest tax brackets (under 15%) the rate may be 0 percent on some or all
of the net capital gain. Rates of 25 or 28 percent may apply to special types
of net capital gain.
8. If your
capital losses exceed your capital gains, you can deduct the excess on your tax
return 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. A new form
(Form 8949, Sales and Other Dispositions of Capital Assets) was introduced in
2011 to calculate capital gains and losses and list all capital gain and loss
transactions. Subtotals are then carried over to Schedule D (Form 1040), where
gain or loss is calculated.
.Barry Eisenberg, SCORE Counselor
I am proud to tell you that our SCORE Chapter has once again been
chosen to host the all important SCORE business conference.
