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 - sign up free here.

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 if it is held longer than a year. 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 2022 Taxes now or by April 18, 2023.

Related: How are NFTs and Cryptocurrencies Taxed?

Investments and Taxes

When you purchase, hold, trade, or sell an asset, this is going to affect your tax situation. This may be from selling property, selling a collectible, trading crypto or an NFT, or other forms of investing. The most common form of trading and investing comes from the stock market. When a purchaser buys a stock in a company at a set price, as the value of the company fluctuates, so does the stock; the holder of the stock can sell high to make a profit and thus incur a capital gain or sell low and take a capital loss. This is all reported at the end of the year by filing an individual income tax return. The amount of time a stock or other asset is held determines how it is taxed:

• Short-term: If an asset is held or owned for less than a year 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 for Tax Year 2022

Long-Term Capital Gains for Tax Year 2023

Long-Term Capital Gains for Tax Year 2021

Long-Term Capital Gains Rates For Tax Year 2020

Long-Term Capital Gains for Tax Year 2019

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 are applied. If you are married and file a joint return, the tax-free amount doubles to $500,000 and 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:

If you did not live in the house for at least two years of the last five, you would be unable to take the exclusion.

See also: the home mortgage tax deduction and various deductions to claim for home improvements. Since your home is like an investments, home improvements increase the value of your asset and some may even be tax deductible.

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.

File your 2022 Taxes on eFile.com now and we will calculate and report all of this information on the proper tax forms 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 - eFileIT. 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 eFile.com TAXometer.

2022 Taxes are due April 18, 2023. Prepare and e-file now or before Tax Day in order to get the most out of your tax refund and avoid any tax penalties.

Related Information

• Learn about taxes on dividends.
• Use our free tax calculators and tools as well as the 2022 Income Tax Return Calculator to estimate your taxes or determine eligibility for tax credits and/or deductions.
• Learn about deductions as a home owner.
• Find ways to save money around the house.

TurboTax^® is a registered trademark of Intuit, Inc.
H&R Block^® is a registered trademark of HRB Innovations, Inc.