When you sell or exchange assets like real estate, stocks, or bonds, you may incur capital gains (profits) or losses. A capital gain occurs when the sale price exceeds the asset's purchase cost, while a capital loss arises when the sale price is lower.

Short-Term vs. Long-Term Gains:

Short-Term: Assets held for 1 year or less; taxed as ordinary income (10%-37%).

Long-Term: Assets held for over 1 year; enjoy lower tax rates (0%, 15%, or 20%).

Offsetting Gains and Losses:

Losses can offset gains to reduce taxable income.

Deduct up to $3,000 annually ($1,500 if married filing separately); excess losses can be carried forward.

Special Exemptions:

Exclude up to $250,000 in gains from the sale of a primary residence ($500,000 for married couples) if ownership and use criteria are met.

Passive activity capital gains and losses occur when there is no material participation in the business activity. Passive activity loss is no deductible on an individual income tax however, the loss can offset passive activity gains.

Maximize your tax savings with smart planning.

 

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