Capital Gains and Losses (2024)

What is a capital asset, and how much tax do you have to pay when you sell one at a profit? Find out how to report your capital gains and losses on your tax return with these tips from TurboTax.

Capital Gains and Losses (1)

Key Takeaways

  • A capital gain is the profit you receive when you sell a capital asset, which is property such as stocks, bonds, mutual fund shares and real estate.
  • Short-term gains come from the sale of assets you have owned for one year or less. They are typically taxed at ordinary income tax rates, as high as 37% in 2023 and 2024.
  • Long-term gains come from the sale of assets you have owned for more than one year. They are typically taxed at either 0%, 15%, or 20% for 2023 and 2024, depending on your tax bracket.
  • A capital loss is a loss on the sale of a capital asset such as a stock, bond, mutual fund or real estate and can typically be used to offset other capital gains or other income.

What is a capital gain?

A capital gain is the profit you receive when you sell a capital asset, which is property such as stocks, bonds, mutual fund shares and real estate. Special rules apply to certain asset sales such as your primary residence.

What's the difference between a short-term and long-term capital gain?

There's a very big difference. The tax law divides capital gains into two main classes determined by the calendar.

  1. Short-term gains come from the sale of property owned one year or less and are typically taxed at your maximum tax rate, as high as 37% in 2023 and 2024.
  2. Long-term gains come from the sale of property held more than one year and are typically taxed at either 0%, 15%, or 20% for 2023 and 2024.

What is the holding period?

The holding period is the amount of time that you own the property before you sell it. When figuring the holding period, the day you buy property does not count, but the day you sell it does.

So, if you bought a stock on March 20, 2022, your holding period began on March 21, 2022. Thus, March 20, 2023 would mark one year of ownership for tax purposes.

  • If you sold on March 20, you would have a short-term capital gain or loss.
  • A sale one day later on March 21 would produce long-term capital gain or loss tax consequences, since you would have held the asset for more than one year.

TurboTax Tip:

Losses on your investments are first used to offset capital gains of the same type. Short-term losses are first deducted against short-term gains, and long-term losses are first deducted against long-term gains.

How much do I have to pay?

The tax rate you pay depends on whether your gain is short-term or long-term.

  • Short-term profits are usually taxed at your maximum tax rate, just like your salary, up to 37%and could even be subject to the additional 3.8% Medicare surtax, depending on your income level.
  • Long-term gains are treated much better. Long-term gainsare taxed at 0%, 15% or 20% depending on your taxable income and filing status.
  • Long-term gains on collectibles—such as stamps, antiques and coins—are taxed at 28%, or at your ordinary-income tax rate if lower.
  • Gains on real estate that are attributable to depreciation—since depreciation deductions reduce your cost basis, they also increase your profit dollar for dollar—are taxed at 25%, or at your ordinary-income tax rate if lower.
  • Long-term gains from stock sales by children under age 19—under age 24 if they are full-time students—may not qualify for the 0% rate because of the Kiddie Tax rules. (When these rules apply, the child’s gains may be taxed at the parents’ higher rates.)

What is a capital loss?

A capital loss is a loss on the sale of a capital asset such as a stock, bond, mutual fund or investment real estate. As with capital gains, capital losses are divided by the calendar into short- and long-term losses.

Can I deduct my capital losses?

Yes, but there are limits. Losses on your investments are first used to offset capital gains of the same type. So, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain.

For example,

  • If you have $2,000 of short-term loss and only $1,000 of short-term gain, the net $1,000 short-term loss can be deducted against your net long-term gain (assuming you have one).
  • If you have an overall net capital loss for the year, you can deduct up to $3,000 of that loss against other kinds of income, including your salary and interest income.
  • Any excess net capital loss can be carried over to subsequent years to be deducted against capital gains and against up to $3,000 of other kinds of income.
  • If you use married filing separate filing status, however, the annual net capital loss deduction limit is only $1,500.

Let a local tax expert matched to your unique situation get your taxes done 100% right with TurboTax Live Full Service. Your expert will uncover industry-specific deductions for more tax breaks and file your taxes for you. Backed by our Full Service Guarantee.

You can also file taxes on your own with TurboTax Premium. We’ll search over 500 deductions and credits so you don’t miss a thing.

Capital Gains and Losses (2024)

FAQs

How much losses can you write off against capital gains? ›

The IRS will let you deduct up to $3,000 of capital losses (or up to $1,500 if you and your spouse are filing separate tax returns). If you have any leftover losses, you can carry the amount forward and claim it on a future tax return.

Are there any loopholes for capital gains tax? ›

A few options to legally avoid paying capital gains tax on investment property include buying your property with a retirement account, converting the property from an investment property to a primary residence, utilizing tax harvesting, and using Section 1031 of the IRS code for deferring taxes.

How do you balance capital gains and losses? ›

Losses on your investments are first used to offset capital gains of the same type. So, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. Net losses of either type can then be deducted against the other kind of gain.

How does IRS verify cost basis real estate? ›

The IRS expects taxpayers to keep the original documentation for capital assets, such as real estate and investments. It uses these documents, along with third-party records, bank statements and published market data, to verify the cost basis of assets.

Are capital losses 100% deductible? ›

You can deduct stock losses from other reported taxable income up to the maximum amount allowed by the IRS—up to $3,000 a year—if you have no capital gains to offset your capital losses or if the total net figure between your short- and long-term capital gains and losses is a negative number, representing an overall ...

Can I offset all my capital gains with capital losses? ›

You can offset capital losses against your capital gains to reduce your total taxable income (gain). Once you've identified the right assets for tax loss harvesting and you sell them, the next step is offsetting capital gains with losses.

At what age do you not pay capital gains? ›

Capital Gains Tax for People Over 65. For individuals over 65, capital gains tax applies at 0% for long-term gains on assets held over a year and 15% for short-term gains under a year. Despite age, the IRS determines tax based on asset sale profits, with no special breaks for those 65 and older.

Can you offset capital gains losses against income tax? ›

Losses made from the sale of capital assets are not allowed to be offset against income, other than in very specific circ*mstances (broadly if you have disposed of qualifying trading company shares). You cannot claim a loss made on the disposal of an asset that is exempt from capital gains tax (CGT).

Why are capital losses limited to $3,000? ›

The $3,000 loss limit is the amount that can be offset against ordinary income. Above $3,000 is where things can get complicated.

How does the IRS know if you have capital gains? ›

Investment Transactions –– Gains from sales and trades of stocks, bonds, or certain commodities are usually reported to you on Form 1099-B, Proceeds From Broker and Barter Exchange Transactions, or an equivalent statement.

Can I use more than $3000 capital loss carryover? ›

Net capital losses in excess of $3,000 can be carried forward indefinitely until the amount is exhausted. Due to the wash-sale IRS rule, investors need to be careful not to repurchase any stock sold for a loss within 30 days, or the capital loss does not qualify for the beneficial tax treatment.

What happens if I don't know my cost basis? ›

If you can't find the information you need online, then you can try calling the brokerage to see if they can provide some numbers for you. You can also look through historical stock pricing data to find the stock's average price for the day you bought it.

What counts as improvements for capital gains? ›

A capital improvement, as defined by the IRS, is a change made to property you own that does at least one of the following: Add to the value of the property. Prolong the property's life. Adapts the home to new uses.

What if you don't know your cost basis? ›

The bottom line is that the IRS expects you to maintain records that identify the cost basis of your securities. If you don't have adequate records, you might have to rely on the cost basis that your brokerage firm reports—or you may be required to treat the cost basis as zero, which could mean owing more in taxes.

Top Articles
Latest Posts
Article information

Author: Aron Pacocha

Last Updated:

Views: 6438

Rating: 4.8 / 5 (68 voted)

Reviews: 83% of readers found this page helpful

Author information

Name: Aron Pacocha

Birthday: 1999-08-12

Address: 3808 Moen Corner, Gorczanyport, FL 67364-2074

Phone: +393457723392

Job: Retail Consultant

Hobby: Jewelry making, Cooking, Gaming, Reading, Juggling, Cabaret, Origami

Introduction: My name is Aron Pacocha, I am a happy, tasty, innocent, proud, talented, courageous, magnificent person who loves writing and wants to share my knowledge and understanding with you.