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Accounting Information > Income Taxes > Capital Gains Tax

Capital Gains Tax

             A capital gain or loss is defined as the difference between the adjusted basis of a capital asset and the realized amount on the sale or exchange of a capital asset.  The tax rates for capital gains are much more favorable than those for ordinary income.  If a capital loss is realized, it is first deducted against capital gains.  Any remaining capital loss is then deducted against up to $3,000 of ordinary income.

             Capital gains and losses are reported on Schedule D.  The first step is to separate your transactions into those for short-term capital assets versus those for long-term capital assets.  If the asset has been held for one year or less, it is a short-term asset, and if held for more than a year, it is a long-term asset.  Each transaction for the year is detailed on Schedule D, showing the date the asset was acquired, the date it was sold, the sales price, and the basis of the asset.  The difference between the basis and the sales price is the gain or loss.


             The capital gain tax rate is usually 5% for taxpayers with a top tax bracket of 10% or 15%.  For taxpayers with a top tax bracket of more than 15%, the capital gain tax rate is usually 15%.  In cases where your child is subject to the “kiddie tax,” and your capital gain rate is higher than their rate, the child’s net capital gain would be taxed at your capital gain rate.

             A special type of capital gain is called a 28% rate gain.  This is the long-term gain resulting from the sale of collectibles like art, antiques, precious metals, gems, stamps, and coins.  If qualified small business stock eligible for the 50% exclusion or empowerment zone business stock eligible for the 60% exclusion is sold, the taxable 50% or 40% part of the gain would be treated as a 28% rate gain.  These 28% rate gains must be reported in the 28% Rate Gain Worksheet included in the Schedule D instructions.  The gains are then reduced by any long-term collectibles losses and any net short-term capital loss for the year, as well as any long-term capital loss carryover from the previous year.

             Any net 28% rate gain is carried over to Schedule D on line 18, and also on the Schedule D Tax Worksheet in the instructions for Schedule D.  The Schedule D Tax Worksheet is where the tax liability for all of your taxable income is computed.  Net 28% rate gains are taxed at 28% if your top tax bracket is greater than 28%.  If your top tax bracket is 25%, your net 28% rate gains would normally be taxed at 25%.  Your net 28% rate gains would be taxed at 10% or 15% if those are your top tax bracket rates.

             If you are looking for a CPA or Accounting Firm to assist you with your income tax reporting, bookkeeping, financial planning, or general accounting needs, then you have come to the right place!  Use the CPA Search feature on this website to find a qualified professional in your area to meet your needs.

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