What's a capital gain or loss?
When you sell a capital asset, the difference between its cost basis and the selling price results in a capital gain or loss.
A capital gain is when your asset's sales price exceeds its cost basis (in other words, you made money). Capital gains must be reported on your tax return.
A capital loss is when you sell the asset for less than its cost basis. Capital losses from investments can be deducted, but not those from personal-use assets, such as your home or personal vehicle.
Your total capital gains for the year minus your total capital losses results in either a net capital gain or a net capital loss.
Short-term capital gains (gains on assets held for one year or less) are taxed as ordinary income.
Long-term capital gains (gains on assets held more than one year) are taxed at a more favorable rate than ordinary income.
Net losses are deductible, but only up to a maximum of $3,000 ($1,500 if Married Filing Separately). Any capital losses you couldn't deduct this year can be carried forward and deducted on future tax returns. This is called a capital loss carryover.
What are some examples of calculating capital gains and losses?
Joe purchased 100 shares of stock for $3,000 and later sold it for $5,000. Joe has a $2,000 capital gain.
Terry lost $2,400 when they sold their coin collection. Terry has a capital loss and can deduct $2,400 of the loss on this year's taxes.
Riley sold shares of stock in five different companies, and the result was a net capital loss of $5,400. Riley can deduct $3,000 of the loss on this year's taxes and has a $2,400 capital loss carryover for next year.
How do I find this info on my 1099-B?
To figure out whether you have short- or long-term gains, take a look at your 1099-B form. Your purchase date will be listed in box 1b. Your date acquired, and date sold will be listed in box 1c. That amount of time is what'll determine how your sale profits are taxed. You can also take a look at box 2—there should be a checkmark that identifies the sale.
