Capital Gains Tax & Losses

Capital gains and deductible capital losses must be reported on your income tax return. Items ranging from stocks to home furnishings are considered capital assets. When capital assets are sold, you experience either a profit or loss. Selling assets for more than you paid for them will result in a capital gain; selling them for less will result in a capital loss.


Capital Gains

The IRS identifies long-term capital gains as assets held for more than one year after purchase; short-term capital gains are assets sold within one year or less of purchase. Long-term capital gains have a lower tax rate than short-term. The tax rate could be as high as 39.6% for short-term gains and either 0%, 15%, or 20% for long-term gains. You may be required to make estimated payments if you have substantial capital gains.


Capital Losses

If you have capital losses on investment property, you can claim no more than $3,000 per year ($1,500 if you are married filing jointly). If your total loss is over $3,000, you can carry it over to the next year and treat it as though you incurred it that year.

Report capital gains and losses on Schedule D then transfer to line 13 on your Form 1040. Publication 550, Investment Income and Expenses or Publication 17, Your Federal Income Tax contain more information about capital gains and losses.

Refer to our Tax Glossary for a complete list of definitions and explanations of commonly used tax terms.