Capital assets include basically everything you own for either personal or investment purposes. Some examples of capital assets are homes and household furnishings and stocks or bonds used as investments. Selling a capital asset can either result in a capital gain or a capital loss. It depends on the difference between the basis of the asset and the sale price. An assets basis is typically what it cost the owner, however, receiving the asset as a gift or inheritance can change the basis. If you sell the asset for more than the basis, you will have a capital gain, whereas selling for less equals a capital loss. You cannot deduct losses from selling personal use property, such as a home or car.

Capital losses and gains are generally classified as either long term or short term. Assets in your possession for longer than one year are considered long term, while anything shorter than a year is short term. The length of time begins from the day you acquired the asset until the day you disposed the asset.

You use Form 8949, Sales and Other Dispositions of Capital Assets, to report sales and transactions on capital assets, then summarize capital gains and deductible capital losses on Schedule D of Form 1040, Capital Gains and Losses. In most cases, the tax rate for net capital gain is 15% or less, depending on your tax bracket. There are circumstances in which net capital gains can be taxed at 20% depending on the taxpayer’s income threshold and its relation to a new 39.6% ordinary tax rate.

Capital gains may be taxed at rates exceeding the typical 15% in the following cases:

• The part of a gain that is taxable from the sale of a section 1202 qualified small business stock is taxed at a 28% maximum rate.
• Net gains from the sale of collectible items such as coins or art are taxed at 28% rate max.
• The portion of an uncaptured section 1250 gain from a sale of 250 real estate property is taxed at 25% max rate.

Short term capital gains are taxed in accordance with ordinary income graduation rates. You may have to make estimated tax payments throughout the year.

If capital losses are more than your capital gains, you can claim whichever amount is less: either $3,000 ($1,500 if filing married, separately) or your total net loss as reported on line 16 of Form 1040. If net loss is more, you are able to carry it forward to the next tax year.