Capital gain

From Wikipedia, the free encyclopedia

In finance, a capital gain is profit that results from the appreciation of a capital asset from its purchase price. If the price of the capital asset has declined instead of appreciated, this is called a capital loss. Capital gains occur in both real assets, such as property, as well as financial assets, such as stocks or bonds.

1 U.S. tax ramifications
2 Other Countries where Capital Gains are taxable
3 References
4 External links

[edit] U.S. tax ramifications

See also: Capital gains tax

Under the United States Tax Code's section 1222, gain or loss from sale or exchange of a capital asset is a capital gain or loss. Per IRS Tax Topic 409, "Almost everything you own and use for personal or investment purposes is a capital asset. Examples are your home, household furnishings, and stocks or bonds held in your personal account." If a person sells a capital asset for more than he or she paid for it, the gain is taxable. However, for personal-use capital assets, such as a personal automobile, a capital loss is not deductible.

[edit] Long term vs. short term

Generally, appreciated capital assets that are sold after being held more than one year (long-term capital gain) will be taxed at a maximum rate of 15%. For the sale of collectibles and small business stock, the capital gain rate is 28%. Appreciated capital assets that are sold after being held less than one year (short-term capital gain) will be taxed as ordinary income, which rises as high as 35% in the progressive tax system.

[edit] Realised vs. unrealised

Capital gains can be either realised or unrealised. Realised capital gains occur when the actual sale of the asset returned more money than the purchase price. Unrealised capital gains occur when it is known that the asset has appreciated in value, but the asset has not been sold yet; the gain is only potential.

Currently in the US, unrealized capital gains are not subject to income tax.

[edit] Capital loss offset

In taxation in the United States, capital gains are subject to capital gains tax, but if a taxpayer has suffered from capital losses in the same year, he can offset the gains with the losses to reduce his taxable income. If the losses exceed the gains, then up to $3,000 may be deducted to offset ordinary income.