A Quick Overlook of Taxes – Your Cheatsheet

Most Important Things You Need To Understand About Capital Gains

A capital gain takes place when you sell something for more than the amount you spent getting it. This is commonplace when it comes to investment, but can also be applied to your own properties. You can get a car for $3,500, and decide to resell it a week later for $5,500 – giving you a capital gain of $2,000. And though it seems simple, and even made simple by capital gain tax calculators, it still good to understand a few basic knowledge about capital gains taxes.

Capital gains aren’t just for the rich

Anyone who’s interested to sell a capital asset should expect that capital gains may be applied. And it’s been pointed out by the Internal Revenue Service (IRS) that just about everything you own can be considered as a capital asset. That’s the case whether an investment was bought, such as property or stocks, or for personal stuff like your car or your huge flat screen TV.

If you sell an item above your “basis”, then the difference is equivalent to your capital gain, and you have to report that gain on your taxes.

Most of the time, the basis is just usually what you paid for the item. It includes not only the price of what you’re selling but also all the other costs you had to spend to own it – such as sales taxes, excise taxes, all sorts of fees, shipping costs, handling fee, setup costs, installation charges, and money you have spent for refurbishments to boost the value of the item.

Most of the time, you home is an exemption.

Your home, just as for many people, is the single biggest asset you have, and depending on the real estate market, you might realize a large capital gain if you put it on sale. But here’s the good news: tax code allows you to exclude part, if not, all of such gain from your capital gains tax report, as long as (1) you owned the home for a minimum of 2 years within the 5-year period prior its sale, (2) it has been your primary residence for not less than two years within the same 5-year period, and (3) you haven’t excluded the gain yet from another home sale within the two-year period prior to its sale.

Your business income is not a capital gain

If you are operating a business that buys and sells items, the gains from your sales will be valued and taxed as business income instead of capital gains.

Loss on capital may mean an offset on capital gains.

Anyone with enough investment experience would agree that things don’t always rise in value – sometimes, they flunk. So if you have sold something for a lesser price than your ‘basis’, then you get a capital loss instead.

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