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IRS.gov Website
Rev. date: 01/01/2011


Capital Gains and Losses

Tax Topic 409
rule
Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, household furnishings, and stocks or bonds held in a personal account. When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss. Generally an asset's basis is its cost, however, if you received the asset as a gift or inheritance, refer to Tax Topic 703 for information about your basis. You have a capital gain if you sell the asset for more than your basis. You have a capital loss if you sell the asset for less than your basis. Losses from the sale of personal-use property, such as your home or car, are not deductible.
Capital gains and losses are classified as long-term or short-term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. To determine how long you held the asset, count from the date after the day you acquired the asset up to and including the day you disposed of the asset.
Capital gains and deductible capital losses are reported on Form 1040 (Schedule D). If you have a net capital gain, that gain may be taxed at a lower tax rate than your ordinary income tax rates. The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than the sum of your net short-term capital loss and any long-term capital loss carried over from the previous year. Generally, net capital gain is taxed at rates no higher than 15%. However, for the years 2008 through 2012, some or all net capital gain may be taxed at 0%, if it would otherwise be taxed at lower rates.
There are three exceptions where capital gains may be taxed at rates greater than 15%:
  1. The taxable part of a gain from selling Section 1202 qualified small business stock is taxed at a maximum 28% rate.
  2. Net capital gain from selling collectibles (such as coins or art) is taxed at a maximum 28% rate.
  3. The part of any net capital gain from selling Section 1250 real property that is required to be recaptured in excess of straight-line depreciation is taxed at a maximum 25% rate.
If you have a taxable capital gain, you may be required to make estimated tax payments. Refer to Publication 505, Tax Withholding and Estimated Tax, for additional information.
If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is the lesser of $3,000, ($1,500 if you are married filing separately) or your total net loss as shown on line 16 of the Form 1040 Schedule D, Capital Gains and Losses. If your net capital loss is more than this limit, you can carry the loss forward to later years. Use the Capital Loss Carryover Worksheet in Publication 550, to figure the amount carried forward.
Additional information on capital gains and losses is available in Publication 550, Investment Income and Expenses, and Publication 544, Sales and Other Dispositions of Assets. If you sell your main home, refer to Tax Topic 701Tax Topic 703, and Publication 523, Selling Your Home.