Capital Gains Taxes, Losses

Capital
Gains

You hear the phrase capital gains a lot when people talk about selling a home, stocks, or other investments - so what is it? Generally, most items you own and utilize for personal usage, business, or investment are capital assets. This includes homes, stocks or bonds, gems and jewelry, household furnishings, coin or stamp collections, metals like gold or silver, and businesses. For more details, read the IRS Publication on Investment Income and Expenses or this one on Sales and Other Dispositions of Assets. When you eFileIT you don't have to worry about the details, as the eFile tax app will do the math for you.

When you sell a piece of property or stocks and you make a profit from the sale, the profit income that you make is called a capital gain and is considered taxable income by the IRS. The IRS taxes income from capital gains differently than regular income. How the capital gains are calculated and how much it is taxed can be confusing and difficult to understand. eFile.com makes it easy for you; when you start a free tax return on eFile.com, you don't have to guess how to report your capital gains nor whether or not you need to pay taxes on them. Simply answer a few questions during the tax interview and we will prepare and complete the correct tax forms to calculate and report any capital gains tax (or losses) that is appropriate for you. e-File your 2020 Taxes now or by April 15, 2021.

Capital Gains and Selling Your Home

If you owned and lived in the home for two of the five years before you sold it and your filing status is single, then up to $250,000 of the profit is tax-free - in other words, no capital gains taxes. If you are married and file a joint return, the tax-free amount doubles to $500,000. You can exclude this amount from your taxable income. You cannot exclude the income if you already excluded income from another home sale in the 2 years before the sale of this home.

In summary, this will help you determine if you will pay taxes on the sale of your home:

Exclusion Amount
Time Owned
Time Lived
During the Last 2 Years
Can you Exclude?
Single - $250,000
At least 2 years
At least 2 of the last 5 years
You did NOT exclude capital gains from the sale of any other home
Yes
Married Filing Joint - $500,000
At least 2 years
At least 2 of the last 5 years
You did NOT exclude capital gains from the sale of any other home
Yes

  • Short-term: If an asset is held (or owned) for a year or less before it is sold, then any capital gain is considered short-term. Short-term capital gains are taxed differently than a long-term capital gain; they are taxed at your ordinary tax rate, or your tax bracket for the given tax year. Not sure of your bracket? Try out this free RATEucator on eFIle.com to find out now. Additionally, use the free FILEucator to help determine your filing status which will impact your tax rate. There is a maximum rate of 28% for certain capital gains. See a publication on Investment Income and Expenses, to learn more.
  • Long-term: If an asset is held (or owned) for more than one year, then any profit from the sale of the asset is considered a long-term capital gain. Long-term capital gains tax rates are 0%, 15%, or 20% depending on your taxable income and filing status. They are generally lower than short-term capital gains tax rates.

To determine if the capital gain is short-term or long-term, count the number of days from the day after you acquire the asset through and including the date you sold the asset.  To find estimated rates for a long-term gain, see the tables below to find the rates for current, future, and recent tax years.

Long-Term Capital Gains Rates For Tax Year 2020

Tax Filing Status
0% Rate
15% Rate
20% Rate
Single
Taxable income up to $40,000
$40,001 - $441,450
More than $441,450
Married Filing Jointly
Taxable income up to $80,000
$80,001 - $496,600
More than $496,600
Married Filing Separately
Taxable income up to $40,000
$40,001 - $248,300
More than $248,300
Head of Household
Taxable income up to $53,600
$53,601 - $469,050
More than $469,050

Long-Term Capital Gains for Tax Year 2021

Tax Filing Status
0% Rate
15% Rate
20% Rate
Single
Taxable income up to $40,400
$40,401 - $445,850
More than $445,850
Married Filing Jointly
Taxable income up to $80,800
$80,001 - $501,600
More than $501,600
Married Filing Separately
Taxable income up to $40,400
$40,001 - $250,800
More than $250,800
Head of Household
Taxable income up to $54,100
$53,601 - $473,750
More than $473,750

Long-Term Capital Gains for Tax Year 2019

Tax Filing Status
0% Rate
15% Rate
20% Rate
Single
Taxable income up to $39,375
$39,376 - $434,550
More than $434,550
Married Filing Jointly
Taxable income up to $78,750
$78,751 - $488,850
More than $488,850
Married Filing Separately
Taxable income up to $39,375
$39,376 - $244,425
More than $244,425
Head of Household
Taxable income up to $52,750
$52,751 - $461,700
More than $461,700

Capital Loss Deduction

If a capital gain is the money that you make on the sale of your home or investments, then the money you lose is called a capital loss - in other words, you made no profit from selling your asset. The capital loss can be deducted from your income, however, there are some limits to this. You can deduct capital losses on investment property only, not on property that was owned for personal use. Losses on your investments are first used to offset capital gains of the same type. For example, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. If your losses exceed your gains, you can deduct the difference on your tax return, up to $3,000 per year ($1,500 for those married filing separately), but they are not considered a regular itemized deduction. If your net loss is greater than the maximum allowed amount, you can carry the excess amount over to future tax years.

Prepare your 2020 Taxes on eFile.com now and we will calculate, determine, and report all of this information for you.

Reporting Capital Gains and Losses on Your Tax Return

All capital gains and losses are required to be reported on your tax return. When you prepare and e-File with eFile.com, the information you enter will allow the app to generate and compete these forms for you. Capital gains and losses are reported on Form 8949 and summarized on Schedule D. The amounts are then reported on your Form 1040 - these are all generated by the eFile app. Capital loss carryovers are reported using the Capital Gains Carryover Worksheet. When using the eFile app, you do not need to worry about this.

If you end up with a taxable capital gain for the tax year, you may have to withhold and make estimated tax payments. To optimize your tax withholding, utilize this free WITHHOLDucator on eFile.com.

2020 Taxes are due April 15, 2021. Prepare and file now or before Tax Day in order to get the most out of your refund and avoid any penalties.

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