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Capital gains are gains that result from the appreciation of a capital asset. The gain comes from the appreciation of the asset relative to its purchase price. If the value of the item has depreciated since its purchase, this is called a capital loss. Capital gains can occur on assets such as property or property, as well as financial assets such as stocks or bonds.
Almost everything you use and own is a capital asset and may be subject to tax. Anything you sell for more than the actual purchase price, resulting in capital gains, may be subject to tax. A capital loss is not tax deductible.
Capital gains tax is variable depending on how long you have owned the asset. If the asset has appreciated and is sold within one year of purchase, the tax rate is the same as for ordinary income, which can be increased to 35% under the progressive tax system. This is considered short-term capital gain. If the valued asset is sold more than one year after purchase, the gain is considered a long-term capital gain. The asset will be taxed at the maximum rate of 15%.
Capital gains are realized or not realized. Unrealized assets are known to have appreciated but have not yet been sold. Capital gain is a potential value. A realized capital gain occurs when an asset has appreciated in value and has been sold.
While capital gains are taxable, there is also a way to offset capital losses you incurred during the year. This is called capital loss compensation. You can offset your capital gain with capital loss tax to reduce your taxes. If your losses are greater than your gains, you can deduct up to US$3,000 to offset ordinary income.
Many countries have their own capital gains tax rules. Some countries allow you to earn a certain amount of income from your capital gain until it is taxable. In the United States, a person can exclude $250,000 of the proceeds from the sale of a property if the property was their primary residence for two to five years prior to the sale. The two years of residence need not be continuous, and the exception is $500,000 if a couple owns the property. There are many rules and exceptions that are clarified on the IRS website.