Selling Capital Assets

Property held for investment purposes may include: Stocks, bonds, mutual funds, land, art, gems, coins, and stamps.

Gains or losses on the sale of investment property are classified as:

  • Capital gains or
  • Capital losses

Holding period

Your holding period determines whether a gain receives short-term or the more favorable, long-term capital gains tax treatment.

Long-term capital gains or losses:

Gain on a capital asset held over one year are taxed at the lower capital gain rates. However, long-term gains on collectibles and qualified small business stock are taxed at 28%.

If your regular top tax bracket is over 15%, long-term unrecaptured Section 1250 gain on real estate is taxed at 25%.

Short-term capital gain or loss:

Gains on capital assets held one year are taxed at ordinary income tax rates.

Ordinary income tax rates are the regular federal income tax rates that apply to ordinary income such as, wages, self-employment income, interest, dividends.

Qualified dividends are taxed at the capital gain rates.

Capital losses

Capital losses are deducted from capital gains. If capital losses exceed capital gains, the excess loss is deductible up to $3,000 per year ($1,500 if married filing separately).

Where to Report Capital Gains and Losses

Form 8949 and Schedule D:

Prior to the introduction of IRS Form 8949 in 2011, capital asset transactions, such as the sale of stocks and bonds, were entered directly on Schedule D.

Beginning in 2011, instead of entering capital asset transactions directly on Schedule D, you must now enter them on Form 8949, then carry the results to Schedule D.

File your personal and small business taxes (Schedule C)