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Understanding capital gains tax long term regulations is an important part of your personal financial planning process. Because of taxes on the profits, a successful investment can be made less successful if you sell it. Similarly, but moving in the opposite direction, a losing investment can provide tax benefits that improve your total financial picture. The key is to understand capital gains taxes.
Understanding Capital Gains
You have a capital gain if you bought a certain type of asset and then sell it for more than you paid for it. You have a capital loss if you sell it for less than you paid. Depending on how long you held the investment before selling, what you owe in taxes or what you can deduct is governed by capital gains tax long term regulations.
Have You Made a Capital Investment?
Not every thing you buy or sell is a capital investment. Following are examples of assets that are considered capital investments and which fall under capital gains tax long term regulations.
Long-Term vs. Short-Term
When determining how capital gains tax long term regulations affect you, you first need to understand the difference between long-term and short-term capital gains.
A short-term capital gain is when you buy and sell an investment within one year or less. Another way to say this is the “holding period” of a short-term capital investment is one year or less. The profit or loss on the sale of these investments are treated just like ordinary income for tax purposes.
The holding period for an asset that qualifies as a long-term capital gain is more than one year.
Capital Gains Tax Rates
Capital gains tax long term regulations determine your long-term capital gains tax rate. This will vary from 5 percent to 15 percent depending on your income tax bracket.
There are special considerations for investments such as real estate. When selling your home, for example, a stated amount of profit may be excluded from capital gains tax so that you pay capital gains tax only on profit in excess of the exclusion.
Other asset classes also are taxed at differing rates with a complete list available online through the Internal Revenue Service.
Important Considerations
The capital gains tax long term regulations are subject to change. In recent years, Congress, which determines tax rates, had favored keeping the long-term capital gains tax rate low. However, in the current economic environment, raising the long-term capital gains tax rates is being discussed.
Keeping good records is absolutely vital to determine the capital gains tax, if any, on investments such as stocks and mutual funds. Knowing the details of your investments is your best defense against over-paying taxes or running into trouble by under-paying.
Understanding Capital Gains
You have a capital gain if you bought a certain type of asset and then sell it for more than you paid for it. You have a capital loss if you sell it for less than you paid. Depending on how long you held the investment before selling, what you owe in taxes or what you can deduct is governed by capital gains tax long term regulations.
Have You Made a Capital Investment?
Not every thing you buy or sell is a capital investment. Following are examples of assets that are considered capital investments and which fall under capital gains tax long term regulations.
- Stocks
- Mutual Funds
- Bonds
- Real Estate
- Precious Metals
- Coins
- Fine Art and Collectibles
Long-Term vs. Short-Term
When determining how capital gains tax long term regulations affect you, you first need to understand the difference between long-term and short-term capital gains.
A short-term capital gain is when you buy and sell an investment within one year or less. Another way to say this is the “holding period” of a short-term capital investment is one year or less. The profit or loss on the sale of these investments are treated just like ordinary income for tax purposes.
The holding period for an asset that qualifies as a long-term capital gain is more than one year.
Capital Gains Tax Rates
Capital gains tax long term regulations determine your long-term capital gains tax rate. This will vary from 5 percent to 15 percent depending on your income tax bracket.
There are special considerations for investments such as real estate. When selling your home, for example, a stated amount of profit may be excluded from capital gains tax so that you pay capital gains tax only on profit in excess of the exclusion.
Other asset classes also are taxed at differing rates with a complete list available online through the Internal Revenue Service.
Important Considerations
The capital gains tax long term regulations are subject to change. In recent years, Congress, which determines tax rates, had favored keeping the long-term capital gains tax rate low. However, in the current economic environment, raising the long-term capital gains tax rates is being discussed.
Keeping good records is absolutely vital to determine the capital gains tax, if any, on investments such as stocks and mutual funds. Knowing the details of your investments is your best defense against over-paying taxes or running into trouble by under-paying.
