IRS Tax Tip 2014-27, March 6, 2014
Update March 7, 2014 — revised to clarify the capital gain tax rates in item 7, and to correctly state that Form 8949 is not always required in item 10.
When you sell a ’capital asset,’ the sale usually results in a capital gain or loss. A ‘capital asset’ includes most property you own and use for personal or investment purposes. Here are 10 facts from the IRS on capital gains and losses:
- Capital assets include property such as your home or car. They also include investment property such as stocks and bonds.
- A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.
- You must include all capital gains in your income. Beginning in 2013, you may be subject to the Net Investment Income Tax. The NIIT applies at a rate of 3.8% to certain net investment income of individuals, estates, and trusts that have income above statutory threshold amounts. For details see IRS.gov/aca.
- You can deduct capital losses on the sale of investment property. You can’t deduct losses on the sale of personal-use property.
- Capital gains and losses are either long-term or short-term, depending on how long you held the property. If you held the property for more than one year, your gain or loss is long-term. If you held it one year or less, the gain or loss is short-term.
- If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a 'net capital gain.’
- The tax rates that apply to net capital gains will usually depend on your income. Although the maximum net capital gain tax rate rose from 15 to 20 percent in 2013, a 0 or 15 percent rate continues to apply to most taxpayers. A 25 or 28 percent tax rate can also apply to special types of net capital gains.
- If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.
- If your total net capital loss is more than the limit you can deduct, you can carry over the losses you are not able to deduct to next year’s tax return. You will treat those losses as if they happened that year.
- You often need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses with your return.
For more information about this topic, see the Schedule D instructions and Publication 550, Investment Income and Expenses. They’re both available on IRS.gov or by calling 800-TAX-FORM (800-829-3676).
Additional IRS Resources:
- Filing Your Taxes
- IRS Tax Map
- Tax Topic 409 - Capital Gains and Losses
- Publication 544, Sales and Other Dispositions of Assets
- Questions and Answers on the Net Investment Income Tax