Few Things You Need To Know About Capital Gains
A capital gain takes place when you sell something for more than the amount you spent getting it. This occurs a lot with investments, but it also applies to personal property. You can get a car for $3,500, and decide to resell it a week later for $5,500 – giving you a capital gain of $2,000. And though it seems simple, and even made simple by capital gain tax calculators, it still good to understand a few basic knowledge about capital gains taxes.
Capital gains aren’t just for wealthy people
Anyone who’s interested to sell a capital asset should expect that capital gains may be applied. And according to the Internal Revenue Service (IRS), just about everything you possess can be qualified as a capital asset. That’s the case whether an investment was bough, such as property or stocks, or for personal stuff like your car or your huge flat screen TV.
If you are selling an item more than you “basis”, the difference represents you capital gain, and that gain should be reflected on your taxes.
Most of the time, the basis is just usually what you paid for the item. It entails not only the price of the item but also any other costs you paid for to acquire it, including excise taxes, sales taxes, and other taxes or fees, handling and shipping fees, installation and setup costs, and money spent on improvements to increase the asset value of the product.
Most of the time, you home is an exemption.
Your house, is possibly the single most valuable asset you own, and depending on your particular real estate market, you might come to know about a huge capital gain on its sale. But here’s the good news: tax code allows you to exclude part, if not, all of such gain from your capital gains tax report, as long as (1) you owned the home for a minimum of 2 years within the 5-year period prior its sale, (2) it has been your primary residence for not less than two years within the same 5-year period, and (3) you haven’t excluded the gain yet from another home sale within the two-year period prior to its sale.
Your business income is not part of your capital gain.
If you’re into a buy and sell business, the gains you get from your sales will be taxed as business income tax and not capital gains tax.
Loss on capital may mean an offset on capital gains.
Similar to any investment, the value of things don’t always rise up – they can go down too. So if you have sold something for a lesser price than your ‘basis’, then you get a capital loss instead.