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, stock, bonds and collectibles. Basically everything you own.
When you sell a capital asset, the difference between the amount you paid for the asset and its sales price is known as a capital gain or capital loss. Here are 6 important facts you should know about how gains and losses can affect your federal income tax return.
- Gains and Losses to report on your return. A capital gain or loss is the difference between your basis and the sale price when you sell an asset. Your basis is usually what you paid for the asset. You must report all capital gains on your tax return. The gain is taxed at 15%, except collectibles which are taxed at 28%. Before calculating the tax you net the gains and losses.
- Net Investment Income Tax. A new law says that you may be subject to the Net Investment Income Tax (NIIT) on your capital gains if your income is above certain amounts. The rate of this tax is 3.8 percent. For additional information about the NIIT, please call the office.
- Deductible Losses. You can only deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.
- Limit on Losses. If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return to reduce other income, such as wages. This loss is limited to $3,000 per year.
- Carryover Losses. If your total net capital loss is more than the limit you can deduct, you can carry it over to next year’s tax return and any unused amount can be carried over indefinitely.
- Forms to File. You often will 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, is a summary of information om form 8949.
Please call the office if you need more information about reporting capital gains and losses.