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What Does the IRS Say about Capital Gains and Capital Losses?

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Question: What Does the IRS Say about Capital Gains and Capital Losses?

Capital Gains Tax is a tax charged on all capital gains (profits on sales of assets by businesses or individuals).

There are two types of capital gains or capital losses:

  • Long-term capital gains/losses, which are gains or losses on assets which are held over one year before being sold
  • Short-term capital gains or capital losses, which are gains or losses on assets which are held less than one year before being sold
Answer:

The IRS has some additional information and regulations about capital gains and losses:

  • You must report all capital gains.
  • You may deduct capital losses only on investment property, not on property held for personal use.
  • If you have long-term gains in excess of your long-term losses, you have a net capital gain to the extent your net long-term capital gain is more than your net short-term capital loss, if any. (For example, if you have a long-term capital gain of $10,000 and a net short-term capital loss of $50,000, you have a $50,000 capital gain.
  • If your capital losses exceed your capital gains, the excess can be deducted on your tax return and used to reduce other income, such as wages, up to an annual limit of $3,000, or $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. Read more about loss carry forward provisions for more information.

Back to What You Need to Know about Capital Gains

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