What is tax rate on capital income?

Answer 1

# 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, get Publication 17, Your Federal Income Tax, and Publication 550, Investment Income and Expenses Currently net capital gain is generally taxed at rates no higher than 15% for most taxpayers, although, for 2008 through 2010, some or all net capital gain may be taxed at 0%, if it would otherwise be taxed at lower rates, for those with lower incomes. There are three exceptions: # The taxable part of a gain from selling Section 1202 qualified small business stock is taxed at a maximum 28% rate. # Net capital gain from selling collectibles (such as coins or art) is taxed at a maximum 28% rate. # 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.