Wealth & Risk Management Blog

William Byrnes (Texas A&M) tax & compliance articles

Ten Tax Facts about Capital Gains and Losses

Posted by William Byrnes on April 4, 2014


In Tax Tip 2014-27, the IRS discussed capital gains and losses.  The IRS stated that when a taxpayer sells a ’capital asset,’ the sale usually results in a capital gain or loss. A ‘capital asset’ includes most property owned and used for personal or investment purposes.

10 tax facts about capital gains and losses:

1. Capital assets include property such as a home or a car. They also include investment property such as stocks and bonds.

2. A capital gain or loss is the difference between the “basis” and the amount earned upon the sale of the asset.  The basis is usually what the taxpayer paid for the asset.

3. A taxpayer must include all capital gains in income.  Beginning in 2013, a taxpayer may be subject to the Obama Care “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.

4. A taxpayer can deduct capital losses on the sale of investment property (such as an apartment building) but can not deduct losses on the sale of personal-use property (such as the family home).

5. Capital gains and losses are either long-term or short-term, depending on how long the property is owned.  If a taxpayer owns the property for more than one year, the gain or loss is long-term.  If owned one year or less, the gain or loss is short-term.

6. If long-term gains are more than long-term losses, the difference between the two is a “net long-term capital gain”.  If net long-term capital gain is more than net short-term capital loss, then the taxpayer has a ‘net capital gain.’

7. The tax rates that apply to net capital gains will usually depend on a taxpayer’s income.  For lower-income individuals, the rate may be zero percent on some or all of their net capital gains.  In 2013, the maximum net capital gain tax rate increased from 15 to 20 percent. A 25 or 28 percent tax rate can also apply to special types of net capital gains.

8. If capital losses are more than capital gains, the taxpayer can deduct the difference as a loss on the tax return. This loss is limited to $3,000 per year, or $1,500 if filing married but separate returns.

9. If total net capital loss is more than the deduction limit above, the losses above the allowable deduction can be carried over to next year’s tax return.  The carried over losses will be treated as if they happened next year.

10. File Form 8949, Sales and Other Dispositions of Capital Assets, with the federal tax return to report your gains and losses.   Also file Schedule D, Capital Gains and Losses with the federal tax return.

2014_tf_on_investments-m2014 Tax Facts on Investments provides clear, concise answers to often complex tax questions concerning investments.  Pertinent planning points are provided throughout.

Organized in a convenient Q&A format to speed you to the information you need, 2014 Tax Facts on Investments delivers the latest guidance on:

  • Mutual Funds, Unit Trusts, REITs
  • Incentive Stock Options
  • Options & Futures
  • Real Estate
  • Stocks, Bonds
  • Oil & Gas
  • Precious Metals & Collectibles
  • And much more!

Key updates for 2014:

  • Important federal income and estate tax developments impacting investments, including changes from the American Taxpayer Relief Act of 2012
  • Expanded coverage of Reverse Mortgages
  • Expanded coverage of Real Estate Investment Trusts (REITs)
  • More than 30 new Planning Points, written by practitioners for practitioners, in the following areas:
    • Limitations on Loss Deductions
    • Charitable Gifts
    • Reverse Mortgages
    • Deduction of Interest and Expenses
    • REITs

Plus, you’re kept up-to-date with online supplements for critical developments.  Written and reviewed by practicing professionals who are subject matter experts in their respective topics, Tax Facts is the practical resource you can rely on.

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