A capital gain or loss is the difference between the basis and the amount of money a tax payer gets when they sell an asset.

The tax rate on a capital gain depends on the taxpayer’s income.  The capital gain tax rate varies from 0% to 28%.

All capital gains must be included in the taxpayer’s income when they file their income taxes.  If a taxpayer’s income is above a certain level, they may be subject to the 3.8% Net Investment Tax.  If a taxpayer is subject to the Net Investment Tax, they must file Form 8960 with their tax return.

Taxpayers can deduct capital losses on the sale of investment property.  Taxpayers cannot deduct capital losses on the sale of assets they hold for personal use.

There are limits to the amount of capital loss a taxpayer can deduct depending on their filing status.  If a taxpayer’s loss is more than they can deduct in one year, the loss can be carried over for the next year.

Schedule D needs to be filed with the taxpayer’s return to report Capital Gains and Losses.  Form 8949 may also need to be filed with the tax return.

For more information about investment income and expenses, click here.