Topic No. 409 Capital Gains and Losses
Almost everything you own and use for personal or investment purposes is a capital a-set. Examples include a home, personal-use items like household furnishings, and stocks or bonds held as investments. When you sell a capital a-set, the difference between the adjusted basis in the a-set and the amount you realized from the sale is a capital gain or a capital loss. Generally, an a-set's basis is its cost to the owner, but if you received the a-set as a gift or inheritance, refer to Publication 551, Basis of A-sets for information about your basis. You have a capital gain if you sell the a-set for more than your adjusted basis. You have a capital loss if you sell the a-set for less than your adjusted basis. Losses from the sale of personal-use property, such as your home or car, aren't tax deductible.
To correctly arrive at your net capital gain or loss, capital gains and losses are classified as long-term or short-term. Generally, if you hold the a-set for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. For exceptions to this rule, such as property acquired by gift, property acquired from a decedent, or patent property, refer to Publication 544, Sales and Other Dispositions of A-sets; for commodity futures, see Publication 550, Investment Income and Expenses; or for applicable partnership interests, see Publication 541, Partnerships. To determine how long you held the a-set, you generally count from the day after the day you acquired the a-set up to and including the day you disposed of the a-set.
If you have a net capital gain, a lower tax rate may apply to the gain than the tax rate that applies to your ordinary income. The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year. The term "net long-term capital gain" means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years. The term “net short-term capital loss” means the excess of short-term capital losses (including any unused short-term capital losses carried over from previous years) over short-term capital gains for the year.
The tax rate on most net capital gain is no higher than 15% for most individuals. Some or all net capital gain may be taxed at 0% if your taxable income is less than or equal to $41,675 for single and married filing separately, $83,350 for married filing jointly or qualifying surviving spouse or $55,800 for head of household.
A capital gain rate of 15% applies if your taxable income is more than $41,675 but less than or equal to $459,750 for single; more than $83,350 but less than or equal to $517,200 for married filing jointly or qualifying surviving spouse; more than $55,800 but less than or equal to $488,500 for head of household or more than $41,675 but less than or equal to $258,600 for married filing separately.
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