Capital Gains and Losses - The Facts

Do you have questions about reporting gains and losses on your tax return? Here are some facts from the IRS.

Almost everything you own and use for personal purposes, pleasure or investment is a capital asset.

When you sell a capital asset, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss.

You must report all capital gains.

You may deduct capital losses only on investment property, not on property held for personal use.

Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.

Net capital gain is the amount by which your net long-term capital gain is more than your net short-term capital loss.

The tax rates that apply to net capital gain are generally lower than the tax rates that apply to other income and are called the maximum capital gains rates. For 2008, the maximum capital gains rates are 0%, 15%, 25% or 28%.

If your capital losses exceed your capital gains, the excess can be deducted on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).

If your total net capital loss is more than the yearly limit on capital loss deductions, you can carry over the unused part to the next year and treat it as if you incurred it in that next year.

Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040.

For more information about reporting capital gains and losses, use the following web sites:

Publication 17, Your Federal Income Tax (PDF 2015.9K)
Publication 550, Investment Income and Expenses (PDF 516K)
Publication 544, Sales and Other Dispositions of Assets (PDF 321K)
Publication 505, Tax Withholding and Estimated Tax (PDF 367K)
Publication 564, Mutual Fund Distributions (PDF 178K)
Publication 547, Casualties, Disasters, and Thefts (PDF 133K)
Publication 527, Residential Rental Property (Including Rental of Vacation Homes) (PDF 187K)