Capital Gains

Capital Gains
• It is important for all taxpayers to understand what information must be reported to the IRS for tax purposes. This includes any gain or loss from the sale of capital assets. A capital asset is considered anything owned by an individual for investment or personal purposes. As a general rule, capital assets include property and investments which are not easily liquidated for cash. Real estate, equipment and other assets which contribute to business operations or personal use are considered capital assets; the sale of which must be reported on income tax returns.
• One of the biggest impacts of the recent tax revision was a change in the way capital gains are taxed. Capital gains can arise when you sell a "capital asset" at a profit.
• For most individuals, the largest single capital asset they own is their home. But capital assets also include investments such as stocks and bonds, and collectibles such as artwork, stamps, or coins.
• Under the new rules, the tax you will owe depends on the type of asset and the time you have held it. Here is a summary of the new rules and some tax planning pointers.

Investments and other assets
• Your capital gains on most other capital assets, such as stocks and bonds, investment real estate, and noncorporate business assets, will be taxed at a variety of rates as shown in the table. The rate you will pay depends on your personal tax bracket, the type of asset, and the holding period.
• Gains on assets held 12 months or less are generally taxed as ordinary income at your regular tax rates. Favorable rates apply to most assets held more than 12 months. Sales of these assets are taxed at 15% if you are in the upper brackets and at -0-% if you are in the 15% bracket for regular income.
• The favorable rates do not apply to collectibles, such as works of art, rugs, antiques, jewelry, and stamps (use 28%). Also, special rates may apply if you sell depreciated real estate (use 25% to recapture §1250 depreciation) and special rules apply to the sale of certain small business stock. Note that the new rules apply to individuals, estates, and trusts, but not to corporations.
• The 28% max tax rate applies to collectibles held more than one year, 50% of the gain on Section 1202 stock (qualified small business stock) held more than 5 years and to a long-term capital loss carryover. To the extent a taxpayer is in a tax bracket below 28%, the lower tax rate applies.
• The 25% max tax rate applies to unrecaptured Section 1250 gain on sale of property.• In 2010, the 15% rate (zero % for taxpayers in the 10% and 15% brackets) applies to qualified dividends received.
• In 2011 and 2012, the tax rate on qualified dividends is reduced to zero % for taxpayers in the 10% and 15% ordinary income tax brackets. If an individual has a regular income tax rate of 25% or higher, then qualified dividend rate is 15%.
• After December 31, 2012, so-called "qualified dividend" (except mutual fund capital gain distributions) will no longer be taxed at the same rate of long-term capital gains, but instead revert to ordinary income taxed at your highest marginal individual tax rates.

What Is A Capital Gain?
Capital assets include almost anything owned for the purpose of investment, pleasure or personal use. When a capital asset is sold, a capital gain or loss occurs. If the amount a capital asset is sold is higher than the original purchase price, the difference is a capital gain, or profit. Conversely, when the amount a capital asset is sold is less than the original purchase price, the difference is considered a loss.

Capital gains and losses are reported in the year the sale of the asset occurred. Capital losses may reduce taxable income up to $3,000 annually. If capital losses exceed the allowable deductible amount for the year, they can be carried over to the next year.

How To Report Capital Gains
Capital gains must be reported on your federal income tax return. Capital gains are subject to tax, the rate of which is determined by the length of time the asset was held. To report capital gains on your income tax return, use Schedule D, Capital Gains and Losses. Transfer information from the Schedule D to Form 1040, line 13. Capital losses from investment property may be deducted.

Capital Gain Classifications
Capital gains are classified by the amount of time you held the asset. Capital gains from assets held more than one year are classified as long-term. Capital gains from property held one year or less are classified as short-term. Long and short term classification of capital gains are important as it impacts rate at which they are taxed.

Short Term Capital Gain Tax Rates
Federal capital gains tax rates for short-term capital gains are usually the same rate applied to ordinary income reported the same year. This can range anywhere from 10% up to 35%. Starting in 2013, short term capital gains rates will increase to 15%-39.6% if tax breaks are not extended.

Long Term Capital Gain Tax Rates
Federal capital gains tax rates for long -term capital gains are usually lower than tax rates applied to ordinary income reported the same year. The special long-term capital gains rate is determined by the ordinary income tax bracket under which you fall. Tax rates for filers in the 10% or 15% tax brackets (including capital gain income) would be 0%. Income totals including capital gain income in the 25% or higher tax bracket will have gains taxed at 15%. In 2013 the long term capital gains rates will increase to 10%-20% if tax breaks are not extended and all dividends will be taxed at ordinary tax rates.

Capital Gain Rates
Through the year 2010, the long-term capital gains tax rates are -0-% and 15%. (25% for §1250 depreciation recapture and 28% for collectibles).

2009 & 2010 Capital Gains Tax Rate

2009-2010  Tax Bracket	2009-2010  Short Term CapitalGain Tax Rate	2009-2010  Long Term  Capital Gain Tax Rate
10%	10%	0%
15%	15%	0%
25%	25%	15%
28%	28%	15%
33%	33%	15%
35%	35%	15%

Bush Era Tax Cut -- Capital Gains/Dividends Tax Rates 

The Act extends the current maximum tax rate for qualified long-term capital gains and dividends (i.e. 15% for most taxpayers, and -0-% for taxpayers in the 10% to 15% tax brackets) through December 31, 2012.    

Capital Gains Rates  for Tax Years 2010, 2011 & 2012
Income Tax Rate	Short-Term Capital Gains  Tax Rate	Long-Term Capital Gains  Tax Rate
10%	10%	0%
15%	15%	0%
25%	25%	15%
28%	28%	15%
33%	33%	15%
35%	35%	15%

Starting in 2013, the tax rate on long-term capital gains will be 20% for filers making income over $400K(single)/$450K (MfJ). Starting in 2013, the distinction between ordinary and qualified dividends will disappear, and all dividends will be subject to the ordinary tax rates.
2013 Federal Capital Gain Tax Rates

Single Taxpayer	Married Filing Jointly	Capital Gain Tax Rate	IRC §1411 Medicare Surtax	Combined Tax Rate
$0 - $36,250	$0 - $72,500	0%	0%	0%
$36,250 - $200,000	$72,500 - $250,000	15%	0%	15%
$200,000 - $400,000	$250,000 - $450,000	15%	3.8%	18.8%
$400,001+	$450,001+	20%	3.8%	23.8%