{"id":2420,"date":"2019-10-21T14:44:08","date_gmt":"2019-10-21T14:44:08","guid":{"rendered":"https:\/\/www.irstaxapp.com\/?page_id=2420"},"modified":"2023-10-02T17:12:03","modified_gmt":"2023-10-02T17:12:03","slug":"capital-gains-under-us-tax-law","status":"publish","type":"page","link":"https:\/\/www.irstaxapp.com\/capital-gains-under-us-tax-law\/","title":{"rendered":"Capital Gains Under US Tax Law"},"content":{"rendered":"\n<p><strong>&#8221; <\/strong><em><strong>Who pays capital gains tax ?<\/strong><\/em><strong>&#8220;<\/strong> is the first question that may arise in a taxpayer, and the answer is simple -anyone who gains on selling or transferring a capital asset will have to pay tax on the amount of gain. I know the next question in your mind -&#8220;what is a capital asset ?&#8221; . Everything you own and use for personal or investment purposes is a  capital asset. For example, land, a home, household furnishings, stocks or bonds or even cryptocurrencies held as investments. <\/p>\n\n\n\n<div id=\"ez-toc-container\" class=\"ez-toc-v2_0_62 counter-hierarchy ez-toc-counter ez-toc-grey ez-toc-container-direction\">\n<p class=\"ez-toc-title\">Table of Contents<\/p>\n<label for=\"ez-toc-cssicon-toggle-item-66291431bd745\" class=\"ez-toc-cssicon-toggle-label\"><span class=\"\"><span class=\"eztoc-hide\" style=\"display:none;\">Toggle<\/span><span class=\"ez-toc-icon-toggle-span\"><svg style=\"fill: #999;color:#999\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" class=\"list-377408\" width=\"20px\" height=\"20px\" viewBox=\"0 0 24 24\" fill=\"none\"><path d=\"M6 6H4v2h2V6zm14 0H8v2h12V6zM4 11h2v2H4v-2zm16 0H8v2h12v-2zM4 16h2v2H4v-2zm16 0H8v2h12v-2z\" fill=\"currentColor\"><\/path><\/svg><svg style=\"fill: #999;color:#999\" class=\"arrow-unsorted-368013\" xmlns=\"http:\/\/www.w3.org\/2000\/svg\" width=\"10px\" height=\"10px\" viewBox=\"0 0 24 24\" version=\"1.2\" baseProfile=\"tiny\"><path d=\"M18.2 9.3l-6.2-6.3-6.2 6.3c-.2.2-.3.4-.3.7s.1.5.3.7c.2.2.4.3.7.3h11c.3 0 .5-.1.7-.3.2-.2.3-.5.3-.7s-.1-.5-.3-.7zM5.8 14.7l6.2 6.3 6.2-6.3c.2-.2.3-.5.3-.7s-.1-.5-.3-.7c-.2-.2-.4-.3-.7-.3h-11c-.3 0-.5.1-.7.3-.2.2-.3.5-.3.7s.1.5.3.7z\"\/><\/svg><\/span><\/span><\/label><input type=\"checkbox\"  id=\"ez-toc-cssicon-toggle-item-66291431bd745\"  aria-label=\"Toggle\" \/><nav><ul class='ez-toc-list ez-toc-list-level-1 ' ><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-1\" href=\"https:\/\/www.irstaxapp.com\/capital-gains-under-us-tax-law\/#Types_of_capital_gains\" title=\"Types of capital gains\">Types of capital gains<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-2\" href=\"https:\/\/www.irstaxapp.com\/capital-gains-under-us-tax-law\/#Rate_for_capital_gains_tax\" title=\"Rate for capital gains tax \">Rate for capital gains tax <\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-3\" href=\"https:\/\/www.irstaxapp.com\/capital-gains-under-us-tax-law\/#How_capital_gains_tax_is_calculated\" title=\"How capital gains tax is calculated\">How capital gains tax is calculated<\/a><\/li><li class='ez-toc-page-1 ez-toc-heading-level-2'><a class=\"ez-toc-link ez-toc-heading-4\" href=\"https:\/\/www.irstaxapp.com\/capital-gains-under-us-tax-law\/#Capital_gains_tax_brackets\" title=\"Capital gains tax brackets\">Capital gains tax brackets<\/a><\/li><\/ul><\/nav><\/div>\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Types_of_capital_gains\"><\/span>Types of capital gains<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p> The capital gains tax in the USA is two types of capital assets- Long Term Capital Assets and Short Term Capital Assets. <a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/1222\" target=\"_blank\" rel=\"noopener\">US Code 1222<\/a> defined &#8220;Short Term Capital Gains &#8221; as under:<\/p>\n\n\n\n<p class=\"has-background\" style=\"background-color:#f7eed3\"> <em>The term \u201c<\/em><a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/1222\" target=\"_blank\" rel=\"noopener\"><em>short-term capital gain<\/em><\/a><em>\u201d means gain from the sale or exchange of a<\/em><a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/1222\" target=\"_blank\" rel=\"noopener\"><em> capital asset <\/em><\/a><em>held for not more than 1<\/em><a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/1222\" target=\"_blank\" rel=\"noopener\"><em> year,<\/em><\/a><em> if<\/em><a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/1222\" target=\"_blank\" rel=\"noopener\"><em> and <\/em><\/a><em>to the extent such gain is taken into account in computing<\/em><a href=\"https:\/\/www.law.cornell.edu\/uscode\/text\/26\/1222\" target=\"_blank\" rel=\"noopener\"><em> gross income.<\/em><\/a><\/p>\n\n\n\n<p>How do you determine whether your asset is long-term or short-term? Easy, just find out the number of months of the holding period. So, if you hold the asset for more than one year, it is a long-term capital asset. If you hold for less than one year, it is a short-term capital asset. Therefore, if you gain on the sale of a long-term capital asset, it is long-term capital gain; if you sell a short-term capital asset, it is short-term capital gain.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Rate_for_capital_gains_tax\"><\/span>Rate for capital gains tax <span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>The capital gains tax rates differ for the two types of gains described above. The capital gains tax long term is taxed at a much lower rate ( see below) , in some cases at zero rates compared to capital gains tax short term, which is subject to taxation as ordinary income at graduated tax rates. <\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"How_capital_gains_tax_is_calculated\"><\/span>How capital gains tax is calculated<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<p>Capital gain or loss can be found by subtracting the adjusted basis of the capital asset from the amount realized out of the sale. If the number is positive, you have a capital gain; if it&#8217;s negative, you have a capital loss that you can use to offset other taxable gains. Use our<a href=\"https:\/\/www.irstaxapp.com\/capital-gains-tax-calculator\/\"> capital gains calculator<\/a><\/p>\n\n\n\n<h3 class=\"wp-block-heading\">What is an adjusted basis?<\/h3>\n\n\n\n<p class=\"has-very-light-gray-background-color has-background\">The actual cost of property is called the basis of property. However, certain other costs related to buying or producing the property may also be involved. If you spent on the improvement of the property, the original basis in the property is adjusted by adding the cost of the improvement. Similarly, reduce your basis if you take deductions for depreciation or casualty losses. This adjustment of basis is called the adjusted basis of property.<\/p>\n\n\n\n<p>The <em><strong>capital gains tax for real estate <\/strong><\/em>is thus sale consideration minus adjusted basis in property. If the net amount is negative, it is a capital loss that can be utilized for adjusting other gains. You can plan<strong> capital gains tax avoidance<\/strong> as per law. You can save on <em><a href=\"https:\/\/www.irstaxapp.com\/how-to-avoid-capital-gains-exemption-tax-house-property\/\">capital gains tax when selling a house<\/a><\/em>. Section 121 of US Code 26 provides that capital gains on the sale of a primary residence shall be tax-free up to \u00a0$ 2,50,000; apart from under certain conditions, you can claim exemption on long-term capital gains earned on the sale of a residential house.  There are various ways in which you can <a href=\"https:\/\/www.irstaxapp.com\/3-definite-ways-to-defer-capital-gains-tax\/\">defer capital gains<\/a>. For example, by investing in a <a href=\"https:\/\/www.irstaxapp.com\/defer-capital-gains-tcja-qof\/\"><strong>qualified opportunity fund<\/strong><\/a> (QOF) to defer capital gains<\/p>\n\n\n\n<h2 class=\"wp-block-heading\"><span class=\"ez-toc-section\" id=\"Capital_gains_tax_brackets\"><\/span>Capital gains tax brackets<span class=\"ez-toc-section-end\"><\/span><\/h2>\n\n\n\n<h4 class=\"wp-block-heading\">2019 <strong>Short-Term Capital Gains Tax Brackets<\/strong><\/h4>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-subtle-pale-blue-background-color has-background\"><thead><tr><th><strong>Tax Bracket\/Rate<\/strong><\/th><th><strong>Single<\/strong><\/th><th><strong>Married Filing Jointly<\/strong><\/th><th><strong>Head of Household<\/strong><\/th><\/tr><\/thead><tbody><tr><td>10%<\/td><td>$0 &#8211; $9,700<\/td><td>$0 &#8211; $19,400<\/td><td>$0 &#8211; $13,850<\/td><\/tr><tr><td>12%<\/td><td>$9,701 &#8211; $39,475<\/td><td>$19,401 &#8211; $78,950<\/td><td>$13,851 &#8211; $52,850<\/td><\/tr><tr><td>22%<\/td><td>$39,476 &#8211; $84,200<\/td><td>$78,951 &#8211; $168,400<\/td><td>$52,851 &#8211; $84,200<\/td><\/tr><tr><td>24%<\/td><td>$84,201 &#8211; $160,725<\/td><td>$168,401 &#8211; $321,450<\/td><td>$84,201 &#8211; $160,700<\/td><\/tr><tr><td>32%<\/td><td>$160,726 &#8211; $204,100<\/td><td>$321,451 &#8211; $408,200<\/td><td>$160,701 &#8211; $204,100<\/td><\/tr><tr><td>35%<\/td><td>$204,101 &#8211; $510,300<\/td><td>$408,201 &#8211; $612,350<\/td><td>$204,101 &#8211; $510,300<\/td><\/tr><tr><td>37%<\/td><td>$510,301+<\/td><td>$612,351+<\/td><td>$510,301+<\/td><\/tr><\/tbody><\/table><\/figure>\n\n\n\n<h4 class=\"wp-block-heading\" id=\"tab-con-2\">2019 Long-Term Capital Gains Rates<\/h4>\n\n\n\n<figure class=\"wp-block-table\"><table class=\"has-subtle-pale-green-background-color has-background\"><tbody><tr><td>0%<\/td><td>$0 &#8211; $39,375<\/td><td>$0 &#8211; $78,750<\/td><td>$0 &#8211; $52,750<\/td><\/tr><tr><td>15%<\/td><td>$39,376 &#8211; $434,550<\/td><td>$78,751 &#8211; $488,850<\/td><td>$52,751 &#8211; $461,700<\/td><\/tr><tr><td>20%<\/td><td>$434,551+<\/td><td>$488,851+<\/td><td>$461,701+<\/td><\/tr><\/tbody><\/table><\/figure>\n","protected":false},"excerpt":{"rendered":"<p>&#8221; Who pays capital gains tax ?&#8220; is the first question that may arise in a taxpayer, and the answer is simple -anyone who gains on selling or transferring a capital asset will have to pay tax on the amount of gain. I know the next question in your mind -&#8220;what is a capital asset [&hellip;]<\/p>\n","protected":false},"author":1,"featured_media":0,"parent":0,"menu_order":0,"comment_status":"closed","ping_status":"closed","template":"","meta":[],"amp_enabled":true,"_links":{"self":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/pages\/2420"}],"collection":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/pages"}],"about":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/types\/page"}],"author":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/comments?post=2420"}],"version-history":[{"count":1,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/pages\/2420\/revisions"}],"predecessor-version":[{"id":7369,"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/pages\/2420\/revisions\/7369"}],"wp:attachment":[{"href":"https:\/\/www.irstaxapp.com\/wp-json\/wp\/v2\/media?parent=2420"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}