Practical and Helpful Tips: Taxes

Key Things You Ought To Know About Capital Gains

A capital gain occurs when you are selling something for more than you have actually spent for it. This is rampant when it comes to investments, but it can also be applicable to your personal property. You can get a car for $3,500, and decide to resell it a week later for $5,500 – giving you a capital gain of $2,000. And though it seems simple, and even made simple by capital gain tax calculators, it still good to understand a few basic knowledge about capital gains taxes.

Capital gains aren’t just for the filthy rich

Anyone who puts their capital asset for sale should know that capital gains tax may be applied. And it’s been pointed out by the Internal Revenue Service (IRS) that just about everything you own can be considered as a capital asset. This applies whether you purchased an investment, such as stocks or property, or personal possessions, such as your car or big flat screen TV.

If you are selling an item more than you “basis”, the difference represents you capital gain, and that gain should be reflected on your taxes.

Your basis is typically what you spent for the item. It involves not only the price of what you’re selling but also any other costs you had to pay to get it -including, but not limited to sales taxes, excise taxes, and other fees, handling or shipping costs, setup or installation charges, money you spent for improvements to boost its value.

Most of the time, you home is an exemption.

The single biggest asset a lot of people have is their house, and depending on the specific real estate market, the owner of the house might realize a big capital gain on a sale. Good news is, tax code lets you exclude some, if not, all of such a gain from your capital gains tax, so long as (1) you owned the property for a total of 2 years (minimum) in the 5-year period before the sale, (2) you lived in your property as primary residence for a minimum of two years in the same 5-year period, and (3) you have not excluded the gain from a different home sale within a 2-year period before the sale.

Your business income is not a capital gain

If you are operating a business that buys and sells items, the gains from your sales will be valued and taxed as business income instead of capital gains.

Capital losses can cause capital gains depreciation.

As anyone with sufficient investment experience would agree, value of things don’t always go up – they go down as well. So if you sell something less than its basis price, then capital loss happens instead.

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