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What Is IRS Capital Gains & Losses Tax – Calculate Rates & Deductions

How Are Capital Gains Taxed?

The amount of taxes that you pay on a capital gain depends on the income tax bracket you’re in, how long you have owned the asset, and the type of capital asset you’re dealing with. Consider the following when reviewing your capital gains:

1. Length of Ownership

There are two separate designations for the length of time you own a capital asset:

  • Short-term: This refers to an asset you have owned for one year (365 days) or less.
  • Long-term: Any capital asset you have owned for longer than one year (more than 365 days) is considered long-term by the IRS.

Each is taxed at a different rate. To determine whether your gain will be taxed at a short-term or long-term rate, and to figure out the cost basis of the asset, you need to have the following documentation:

  • The exact date you purchased the item
  • Records of the purchase price, including any taxes and fees you paid
  • Records of the exact date that you sold the item
  • How much it sold for and fees you paid while holding it (although in the case of real estate, this doesn’t include amounts paid to maintain it)

Once you have all of the proper documentation in hand, you can find the exact amount that you should declare as a gain or profit, and begin the process of determining the tax rate.

Short-term capital gains are taxed at the same top-tier rate as your regular income. On the other hand, long-term capital gains on most items are taxed at either 0% (for 10% and 15% tax brackets), 15% (for 25% through 35% tax brackets), or 20% (for the 39.6% tax bracket) in 2015. That said, certain other items may be taxed differently – for instance, collectiblesare taxed at a maximum rate of 28%.

Since it is more than likely that the long-term rate is lower than your tax bracket, it can be very advantageous to hold assets for longer than one year.

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