Personal or investment property that you own is typically considered a “capital asset”. Examples range from material items like a house or car, to investment items like stocks and bonds. A capital gain or loss occurs when a “capital asset” is sold.
Whether you can consider the sale a capital gain or loss depends on the amount you receive for the asset versus what you paid for it originally.
Any capital gains must be factored into your annual income. Since 2013, those with net investment income above the statutory threshold are subject to a 3.8% tax through the Net Investment Income Tax. The NIIT applies to individuals, estates and trusts.
Capital loss is deductible as the result of investment property sale, however, not from personal property.
Long-Term vs. Short-Term
Whether a capital gain or loss is considered long-term or short-term depends on the length of time you owned the property. Property owned for longer than a year falls under the long-term definition, whereas that which you had for less than a year is considered short-term.
An individual who accrues more long-term gains than losses is consider to have a net long-term capital gain. A “net capital gain” occurs when net long-term gains are greater than short-term loss.
Tax Rates
Tax rates on net capital gains will vary depending on income. The maximum net capital gain tax increased to 20% in 2014 (previously at 15%), many taxpayers still fall under a 0 or 15% rate. Certain types of net capital gains may be subject to a 25%-28% tax rate.
Deductions of capital losses are possible if they are more than any capital gains. You can claim them as a loss on your tax return, though it is limited to $3,000 a year. If you are married but file separate returns, you are limited to a $1,500 deduction for capital losses.
If you have more net capital loss than the maximum limit, you can deduct the remained on the following year’s tax return, treating the loss as if it occurred during that year.
In order to report capital gains and losses, you need to file Form 8949, Sales and Other Dispositions of Capital Assets. Additionally, you’ll need to file Schedule D, Capital Gains and Losses with your regular federal tax return.
