Long-Term Capital Gain (LOSS)

Profit (loss) on securities or capital assets and i1231 assets when the interval between purchase and sale is longer than 12 months. Net long-term capital gains (LTCG) are taxed at a maximum of 20% for individuals. Individuals in the 15% bracket pay 10% on capital gain. Only up to $3,000 of a net long-term capital loss (LTCL) is deductible per year by an individual. For a corporation, a net LTCG is taxed as Ordinary Income, and a net LTCL is not deductible; though it may be carried back three years or forward five years, it may not cause a Net Operating Loss.

For income tax purposes, the gain on a Capital Asset held long enough to qualify for special tax considerations.

Note: The highest rate for individuals having long-term capital gains on sales after May 6, 2003, is 15%.

Broadly, all the money and other property of a corporation or other enterprise used in transacting its business, 61 N.W. 851, 852; each investment. A corporation's legal liability is ordinarily limited by its capital. See also risk capital.

capital accounts that part of a business's accounting records where capital assets and expenditures, and the liabilities incurred to acquire such assets and make such expenditures, are taken into account. The capital account usually consists of capital assets [below] and capital liabilities, such as long term debt, and stock and other equity ownership.

capital asset property with a relatively long life, or fixed assets in a trade or business. For tax purposes, property, the sale or exchange of which gives rise to capital gain or loss rather than ordinary income or a deduction. Capital assets include most property other than inventory, stock in trade, depreciable business property, and business real property. I.R.C. §1221.

capital expenditures the cost of an acquisition of or repair to property which property or improvement has a useful life extending substantially beyond the taxable year. Such costs are not deductible for income tax purposes. I.R.C. §263. However, they may be subject to depreciation or depletion. Compare expenses.

capital gains or losses gains or losses realized from the sale or exchange of capital assets, calculated as the difference between the amount realized on the sale or exchange and the taxpayer's basis in the assets. I.R.C. §1001. long-term capital gains or losses are capital gains or losses from the sale or exchange of capital assets held for the required holding period (generally, one year for taxable years beginning after 1977). I.R.C. §1223. The net long-term capital gain or loss for the year is combined with the net short-term capital gain or loss for the year to arrive at an overall (net) capital gain or loss. If capital gains exceed capital losses, the overall gain is included with the taxpayer's other income but is subject to a maximum tax rate of 28 percent for individuals and 35 percent for corporations. If capital losses exceed capital gains, the overall losses are subject to deduction limitations, generally $3,000 per year for noncorporate taxpayers.

In order to encourage the flow of capital to small businesses, the 1993 Revenue Act permits noncorporate taxpayers to exclude 50% of any gain realized on the sale or exchange of "qualified small business stock" ("QSBS") held for more than 5 years (Code Sec. 1202(a) as added by 1993 Act §1311(a)), subject to certain limitations and special rules. short-term capital gains or losses are gains or losses from the sale or exchange of capital assets held for a period shorter than the required holding period.

capital intensive an industry or economic sector that requires a large amount of machinery, equipment, etc., relative to the quantity of labor or land required. The energy industries-oil production and refining, coal mining, and electric power generation-require large amounts of capital equipment per unit of output. Historically, coal mining was a labor intensive industry requiring a large labor force to dig the product using hand tools. This is no longer the case, however, as modern strip-mining machinery can dig more coal per hour than fifty miners using hand tools could dig in a shift.

capital investment money paid out for acquisition of a capital asset, or something for permanent use or value in a business or home, see 205 F. 2d 538, 542; also, monies paid out for an interest in a business as in the purchase of stock.

capital market the organized buying and selling of long-term fixed-income securities such as bonds or mortgages, proceeds from the sale of which are used to finance capital expenditures [above]. In contrast to the capital market, the money market is used to raise short-term funds and the equity market (see equity) is used to obtain permanent capital through the sale of stock.

capital stock "the amount of money or property contributed by shareholders to be used as the financial foundation from which the business of incorporation is to be carried on." 74 Cal. Rptr. 920, 925. The charter of the corporation limits the total capital stock, which is divided into shares, to be offered to the public.

capital surplus see surplus [capital surplus].

§1231 property depreciable business property, business real property, and certain other types of property are §1231 property. These assets produce long-term capital gain and ordinary loss. I.R.C. §1231.