Capital gains tax

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Captial Gains Tax

Capital gains taxes are levied whenever an individual sells an asset that has appreciated in value. The individual is then taxed on the difference between the selling price of that asset and their original cost.

For example, if you buy an asset for $60,000, and sell that house for $260,000, the $200,000 gain will be taxed.

If you own the asset for less than one year, you will owe short-term capital gains at the ordinary income tax rate.

If you own the asset for longer than one year, you tax rate depends upon your income and the type of asset you sold.

Current Capital Gains Tax Rates (as of May 30, 2004)

Stocks, Bonds, and Mutual Funds

  • 8% - For individuals in the 10% or 15% income tax bracket who held the investment for over 1 year.
  • 15% - For individuals in the 25% income tax bracket or higher who held the investment for over 1 year.

For example, if you buy 100 shares of Microsoft at $25 in 1999 and sell it at $30 in 2002, you would have a capital gain of $500. Assuming your in the 25% tax bracket, that gain would be taxed at 15%, so you would pay $75 of your $500 to Uncle Sam and put the rest of your $425 in your pocket.

Real Estate owned as investment

  • 25% - For individuals in the 25% bracket or higher who own the real estate for longer than 1 year.

There's some more complication on real estate investments due to depreciation and possible improvements.

Collectables and Small Business Stock

  • 28% - For individuals who own collectibles (such as stamps, coins, comic books, etc.) or small business stock and whose income tax bracket is 28% or higher.

Homes

  • 0% - For individuals who have used their home as their primary residence for 2 years or more. You can exclude up to $250,000 of the gain of the home from capital gain taxes. If you are married, this can be up to $500,000 of the gain.

As always, this information is not authoritative. Please consult your tax advisor before acting on any of this information.

-Kilroy 10:25, 30 May 2004 (PDT)

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