What is a capital gain? Simply put, capital gain is the amount you gained after selling something for higher than you’ve acquired it. That said, if you’re selling an asset for more than you bought it for, then capital gains tax is something you’ll have to keep in mind.
If you’ve never dealt with capital gains tax before, here’s what you need to know:
Capital Gains Tax Applies to Everyone
Whether you’re rich or not, capital gains tax will usually apply. It applies to pretty much everything you own that can be labeled as a capital asset. So whether you’re selling property, stocks, or even your car, capital gains tax will apply to them all.
Reporting Capital Gains Taxes
How do you report your capital gains? It’s quite simple, actually. You take what you paid for the capital asset, which is what you call the “basis,” and take the difference between that and the price at which you sold it.
Delving deeper into the “basis” of your item, not only does it include the original cost you bought it from, but other fees you may have paid to acquire it. For example, if you’ve had it shipped, then you will include the shipping cost as well as other taxes. Installing and setup costs will also count into the “basis” of the item. Also, any upgrades you made to the particular asset, such as a property upgrade, can also be added to the “basis.”
Capital Gain Taxes for Homes
Perhaps the one item that everyone has that will often realize a capital gain would be their home. Fortunately, if you’re selling yours, you’re allowed to exclude some or even all your capital gains to avoid the tax completely. However, not everyone will qualify for this, and if you’re interested in knowing if you are, here are the requirements you’ll need to satisfy:
- You’re selling a home you’ve owned for at least two years in a five-year period leading up to the sale
- You did not exclude any other capital gains from any other home you’ve sold two years leading up to the current sale
- The home you’re selling has been your primary residence for two years in the five years leading up to the sale.
Once you’ve satisfied all these requirements, you will be able to exclude $500,000 if you’re married, or half that if you’re single.
Dealing with Capital Losses
As you know, not everything goes up in value. Sometimes, when you sell one of your capital assets after a few years, you’re going to sell it at a lower price. What then? You can use that loss to offset any capital gains you might have!
For example, if your capital loss is more than your capital gain, you can offset up to $3,000. However, if the loss is more than that amount, you can carry over the extra losses on any future income.
Now that you’ve learned a bit more about capital gains, what it is and how it works, you now know what to expect the next time you decide to sell one of your capital assets that’s higher than its “basis.” However, if you’re still having trouble working with capital gains and need help, you can always look for investment agencies to help!
Are you looking to learn more about capital gains tax? We’re here for you! get in touch with us and let us know how we can help you.
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