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Almost everything you own and use for personal or investment purposes is a capital asset.
Examples include a
- personal-use items like household furnishings, and
- stocks or bonds held as investments.
When you sell a capital asset, the difference between the basis in the asset and the amount you sell it for is a capital gain or a capital loss.
Capital Gains Summary
Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. Learn More — IRS Publication 544, Sales and Other Dispositions of Assets.
If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).
Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040. This year, the capital loss carryover worksheet has been removed from the Instructions for Schedule D to simplify tax preparation. However, there will be a worksheet in the 2004 Instructions to Schedule D to figure a capital loss carryover to 2004. See FAQ on Covered CA MAGI Income & Carry Over
If you have a taxable capital gain, you may be required to make estimated tax payments. See Publication 505, Tax Withholding and Estimated Tax, for information on estimated tax.
The top tax rate on net capital gain (i.e., net long-term capital gain reduced by any net short-term capital loss) has been reduced from 20% to 15% (and from 10% to 5% for gains that would otherwise be taxed at a regular rate of 10% or 15%) for property sold or otherwise disposed of after May 5, 2003 (and installment sale payments received after that date). The reduced rate applies for both the regular tax and the alternative minimum tax. The higher rates that apply to unrecaptured section 1250 gain, collectibles gain, and section 1202 gain have not changed.
Dividends paid by most domestic and foreign corporations after December 31, 2002, are eligible for the new maximum capital gains tax rate of 15% (5% in some cases). Qualified dividends are reported on line 9b of Forms 1040 or 1040A.
Additional information on capital gains and losses is available in Publications 550, Investment Income and Expenses, and 17, Your Federal Income Tax. You may download the publications from this Web site or order your free copies by calling 1-800-TAX-FORM (1-800-829-3676).
If you have investment or other types of financial losses Source IRS Tax Tip 2004-34, Feb. 19, 2004 should also check out these other IRS publications:
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Capital Gains and Losses
When you sell a capital asset, the sale normally results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment.
Capital assets include property such as your home or car, as well as investment property, such as stocks and bonds.
Gains and Losses.
A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.
Net Investment Income Tax.
You must include all capital gains in your income and you may be subject to the Net Investment Income Tax if your income is above certain amounts. The rate of this tax is 3.8 percent. For details, visit IRS.gov.
You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.
Limit on Losses.
If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.
If your total net capital loss is more than the limit you can deduct, you can carry it over to next year’s tax return. See FAQ
Long and Short Term.
Capital gains and losses are treated as either long-term or short-term, depending on how long you held the property. If you held it for one year or less, the gain or loss is short-term.
Net Capital Gain.
If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain.
The tax rate on a net capital gain usually depends on your income. The maximum tax rate on a net capital gain is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain.
Forms to File.
To get Covered CA MAGI Income
take #Line8b 11 Adjusted Gross income then add line 2a, 6a & 8 (Foreign Income)
- 1040 IRS Annual Tax Form
- Schedule 1 Additional Income & Adjustments to Lower your MAGI Income
- Steve's Video on MAGI Income
- Get instant quotes, subsidy calculation and coverages
- NO ASSET TEST for MAGI based subsidies in Covered CA or MAGI Medi Cal Qualification. VIDEO
- Nor is there a lien against your estate for Covered CA or MAGI Medi Cal
- You tube VIDEO on Schedule D
- Schedule 1040 D Capital Gains & Losses
- Net Operating Losses 536
- Sales and Disposition of Assets 544
- Learn More ⇒IRS Tax Topic 409
- Report most sales and other capital transactions and calculate gain or loss on Form 8949 (PDF), Sales and Other Dispositions of Capital Assets, then summarize capital gains and deductible capital losses on
- Form 1040, Schedule D (PDF), Capital Gains and Losses.
- Publication 505, Tax Withholding and Estimated Tax
- Publication 550, Investment Income and Expenses
- 551 - Basis of Assets
- Publication 544, Sales and Other Dispositions of Assets
- Topics 701 and 703, and Publication 523, Selling Your Home.
- How much does Term Life Insurance to cover any loans and protect your family run?
- A “paper loss” – a drop in an investment’s value below its purchase price – does not qualify for the deduction. The loss must be realized through the capital asset’s sale or exchange.
- Publication 544, Sales and Other Dispositions of Assets (PDF 321K)
- Form 1040, U.S. Individual Income Tax Return (PDF 136K)
- Publication 505, Tax Withholding and Estimated Tax (PDF 367K)
- Publication 550, Investment Income and Expenses (PDF 516K)
- Publication 17, Your Federal Income Tax (PDF 2075K)
- Publication 564, 551 - Mutual Fund Distributions (PDF 178K)
- Publication 547, Casualties, Disasters, and Thefts (PDF 133K)
- Publication 527, Residential Rental Property (Including Rental of Vacation Homes)
- Schedule B (Form 1040), Interest and Ordinary Dividends General Information
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1st please be sure to read the information above on capital gains, so we don’t have to repeat the same information.
How Selling Your Home Can Impact Your Taxes
Usually, profits you earn are taxable. However, if you sell your home, you may not have to pay taxes on the money you gain. Here are ten tips to keep in mind if you sell your home this year.
- Exclusion of Gain. You may be able to exclude part or all of the gain from the sale of your home. This rule may apply if you meet the eligibility test. (Page 3 of Publication 523) Parts of the test involve your ownership and use of the home. You must have owned and used it as your main home for at least two out of the five years before the date of sale.
- Exceptions May Apply. There are exceptions to the ownership, use and other rules. One exception applies to persons with a disability. Another applies to certain members of the military. That rule includes certain government and Peace Corps workers. For more on this topic, see Publication 523, Selling Your Home.
- Exclusion Limit. The most gain you can exclude from tax is $250,000. This limit is $500,000 for joint returns. The Net Investment Income Tax will not apply to the excluded gain.
- May Not Need to Report Sale. If the gain is not taxable, you may not need to report the sale to the IRS on your tax return.
- When You Must Report the Sale. You must report the sale on your tax return if you can’t exclude all or part of the gain. You must report the sale if you choose not to claim the exclusion. That’s also true if you get Form 1099-S, Proceeds From Real Estate Transactions. If you report the sale, you should review the Questions and Answers on the Net Investment Income Tax on IRS.gov.
- Exclusion Frequency Limit. Generally, you may exclude the gain from the sale of your main home only once every two years. Some exceptions may apply to this rule.
- Only a Main Home Qualifies. If you own more than one home, you may only exclude the gain on the sale of your main home. Your main home usually is the home that you live in most of the time.
- First-time Homebuyer Credit. If you claimed the first-time homebuyer credit when you bought the home, special rules apply to the sale. For more on those rules, see Publication 523.
- Home Sold at a Loss. If you sell your main home at a loss, you can’t deduct the loss on your tax return.
- Report Your Address Change. After you sell your home and move, update your address with the IRS. using Form 8822, Change of Address and your friendly Insurance Agent (s).
Tips to Keep in Mind on Income Taxes and Selling a Home
Homeowners may qualify to exclude from their income all or part of any gain from the sale of their main home.
Below are tips to keep in mind when selling a home:
Ownership and Use. To claim the exclusion, the homeowner must meet the ownership and use tests. This means that during the five-year period ending on the date of the sale, the homeowner must have:
- Owned the home for at least two years
- Lived in the home as their main home for at least two years Gain. If there is a gain from the sale of their main home, the homeowner may be able to exclude up to $250,000 of the gain from income or $500,000 on a joint return in most cases. Homeowners who can exclude all of the gain do not need to report the sale on their tax return
Loss. A main home that sells for lower than purchased is not deductible.
Reporting a Sale. Reporting the sale of a home on a tax return is required if all or part of the gain is not excludable. A sale must also be reported on a tax return if the taxpayer chooses not to claim the exclusion or receives a Form 1099-S, Proceeds from Real Estate Transactions.
Possible Exceptions. There are exceptions to the rules above for persons with a disability, certain members of the military, intelligence community and Peace Corps workers, among others. More information is available in Publication 523, Selling Your Home.
Worksheets. Worksheets are included in Publication 523, Selling Your Home, to help you figure the:
- Adjusted basis of the home sold
- Gain (or loss) on the sale
- Gain that can be excluded
Items to Keep In Mind:
- Taxpayers who own more than one home can only exclude the gain on the sale of their main home. Taxes must paid on the gain from selling any other home.
- Taxpayers who used the first-time homebuyer credit to purchase their home have special rules that apply to the sale. For more on those rules, see Publication 523. Use the First Time Homebuyer Credit Account Look-up to get account information such as the total amount of your credit or your repayment amount.
- Work-related moving expenses might be deductible, see Publication 521, Moving Expenses.
- Taxpayers moving after the sale of their home should update their address with the IRS and the U.S. Postal Service by filing Form 8822, Change of Address.
- Taxpayers who purchased health coverage through the Health Insurance Marketplace should notify the Marketplace when moving out of the area covered by the current Marketplace plan.
Avoid scams. The IRS does not initiate contact using social media or text message. The first contact normally comes in the mail. Those wondering if they owe money to the IRS can view their tax account information on IRS.gov to find out.
- Tax Topic 701, Sale of Your Home
- Tax Topic 703, Basis of Assets
- Tax Topic 611, Repayment of the First-Time Homebuyer Credit
- IRS Tax Map, Selling Your Home
Home Energy Tax Credits Save You Money at Tax Time
Certain energy-efficient home improvements can cut your energy bills and save you money at tax time. Here are some key facts that you should know about home energy tax credits:
Non-Business Energy Property Credit
- Part of this credit is worth 10 percent of the cost of certain qualified energy-saving items you added to your main home last year. This may include items such as insulation, windows, doors and roofs.
- The other part of the credit is not a percentage of the cost. This part of the credit is for the actual cost of certain property. This may include items such as water heaters and heating and air conditioning systems. The credit amount for each type of property has a different dollar limit.
- This credit has a maximum lifetime limit of $500. You may only use $200 of this limit for windows.
- Your main home must be located in the U.S. to qualify for the credit.
- Be sure you have the written certification from the manufacturer that their product qualifies for this tax credit. They usually post it on their website or include it with the product’s packaging. You can rely on it to claim the credit, but do not attach it to your return. Keep it with your tax records.
- You must place qualifying improvements in service in your principal residence by Dec. 31, 2016.
Residential Energy Efficient Property Credit
- This tax credit is 30 percent of the cost of alternative energy equipment installed on or in your home.
- Qualified equipment includes solar hot water heaters, solar electric equipment, wind turbines and fuel cell property.
- Qualified wind turbine and fuel cell property must be placed into service by Dec. 31, 2016. Hot water heaters and solar electric equipment must be placed in to service by Dec. 31, 2021.
- The tax credit for qualified fuel cell property is limited to $500 for each one-half kilowatt of capacity. The amount for other qualified expenditures does not have a limit. If your credit is more than the tax you owe, you can carry forward the unused portion of this credit to next year’s tax return. • The home must be in the U.S. It does not have to be your main home, unless the alternative energy equipment is qualified fuel cell property.
Moving Expenses Can Be Deductible
Did you move due to a change in your job or business location? If so, you may be able to deduct your moving expenses, except for meals. Here are the top tax tips for moving expenses.
In order to deduct moving expenses, your move must meet three requirements:
- The move must closely relate to the start of work. Generally, you can consider moving expenses within one year of the date you start work at a new job location. Additional rules apply to this requirement.
- Your move must meet the distance test. Your new main job location must be at least 50 miles farther from your old home than your previous job location. For example, if your old job was three miles from your old home, your new job must be at least 53 miles from your old home.
- You must meet the time test. After the move, you must work full-time at your new job for at least 39 weeks in the first year. If you’re self-employed, you must meet this test and work full-time for a total of at least 78 weeks during the first two years at your new job site. If your income tax return is due before you’ve met this test, you can still deduct moving expenses if you expect to meet it.
See Publication 521, Moving Expenses, for more information about these rules. It’s available on IRS.gov/forms anytime.
If you can claim this deduction, here are a few more tips from the IRS:
- Travel. You can deduct transportation and lodging expenses for yourself and household members while moving from your old home to your new home. You cannot deduct your travel meal costs.
- Household goods and utilities. You can deduct the cost of packing, crating and shipping your things. You may be able to include the cost of storing and insuring these items while in transit. You can deduct the cost of connecting or disconnecting utilities.
- Nondeductible expenses. You cannot deduct as moving expenses any part of the purchase price of your new home, the cost of selling a home or the cost of entering into or breaking a lease. See Publication 521 for a complete list.
- Reimbursed expenses. If your employer later pays you for the cost of a move that you deducted on your tax return, you may need to include the payment as income. You report any taxable amount on your tax return in the year you get the payment.
- Address Change. When you move, be sure to update your address with the IRS and the U.S. Post Office. To notify the IRS file Form 8822, Change of Address.
Premium Tax Credit – Changes in Circumstances.
If you or anyone in your family purchased health coverage through the Marketplace and had advance payments of the premium tax credit paid in advance to your insurance company to lower your monthly premiums, it is important to report life changes to the Marketplace when they happen. Moving to a new address is one change you should report. Other things to report include changes in your income, employment, family size, and gaining or losing eligibility for other coverage. Reporting life changes as they happen allows the Marketplace to adjust your advance credit payments. This will help you avoid a smaller refund or unexpectedly owing taxes when you file your tax return.
Additional IRS Resources:
10 days for Medi Cal 22 CCR § 50185
Our webpage on ARPA & Unemployment Benefits - Silver 94
- Our VIDEO on how to report changes to Covered CA
- Lost your job? How to keep your Health Insurance. Shelter at Home VIDEO
- References & Links
- Here's instructions, job aid, reporting change in income
- Our webpage on the exact definition of MAGI Income
- If you've appointed us - instructions - as your broker, no extra charge, we can do it for you.
- Voter Registration
- Task Guide Phone - Voter Registration
- Denial of benefits and possible criminal charges if you don't report changes in income!
- Fudging Income?
- Western Poverty Law on reporting changes
- How to cancel coverage.
- Visit our webpage on how to report changes
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