Your Options and Requirements for Reporting Capital Gains
Sept. 25, 2023
The largest investment most Americans will make is in their primary residence. Say you paid $200,000 for your home when you bought it, but at retirement, you decide to sell it and either buy or lease something smaller in another area. You get $600,000 for your property, meaning you realized a $400,000 profit. Uncle Sam, via the Internal Revenue Service (IRS), will have his hand out for taxes on what is called your capital gain, or profit.
Capital gains, or the profit you make from buying and selling something, whether it be real estate, stocks, bonds, artwork, a vehicle, you name it, are taxed at two different levels. Short-term capital gains are for items or investments held for one year or less. Long-term capital gains are for items and investments held for more than one year.
Short-term capital gains are taxed at your income filing rate up to 37 percent, while long-term capital gains get more favorable treatment and max out at 20 percent. Depending on your filing status (single, married filing jointly, married filing separately, or head of household), you can realize a nice capital appreciation and sometimes not even pay any taxes on your long-term gains.
For all your tax filing questions and concerns in or around Reno, Nevada, contact the Law Office of Scott N. Tisevich.
Scott N. Tisevich, Attorney at Law has decades of tax accounting experience and can help you and/or your small business navigate the reporting and taxation requirements of the IRS. He also proudly serves clients in Las Vegas and Carson City, and throughout the counties of Churchill, Lyon, Story, and Douglas.
Understanding Capital Gains
The IRS on its website describes capital gains in this way: “Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, personal-use items like household furnishings, and stocks or bonds held as investments.” The example given earlier of a retiree selling his residence reflects one such capital gain.
Now, suppose instead that the retiree had a portfolio of stocks he’d accumulated outside of a qualified retirement account. He could then deduct any capital losses from his investment to come up with what the IRS terms as net capital gain, which in this case would be long-term if he held those assets for more than a year.
Figuring out long-term vs. short-term is easy. According to the IRS, if you hold an asset for one day longer than the one-year anniversary of when you acquired it, then it is considered long-term. What gets more confusing is determining what the IRS calls the adjusted basis, which accounts for any changes, positive or negative, in the items or investments you’ve sold. For this calculation, you should consult with an experienced tax attorney such as Scott N. Tisevich.
How Much Are Capital Gain Taxes?
This gets back to both your filing status and whether you’re talking about short-term or long-term capital gains. Short-term capital gains are taxed as part of your total yearly income. If you gain $40,000 in a capital sale, that is simply added to your income to determine what tax bracket you fall into based on your filing status (single, married filing jointly, married filing separately, or head of household).
According to the IRS, the tax rate on most net capital gains is generally no higher than 15 percent for most individuals. Some or all net capital gain may be taxed at 0 percent if your taxable income is less than or equal to $41,675 for single and married filing separately, $83,350 for married filing jointly or qualifying surviving spouse, or $55,800 for head of household. However, there is a 20 percent bracket when your gains exceed certain levels.
Our retiree with his $400,000 gain would escape the 20 percent bracket unless he were married and filing separately. The limit for that filing status is $250,801 before 20 percent kicks in. If he were single, for whom the limit is $445,851, he would remain in the 15 percent column.
Seek Trusted Legal Advice
The IRS, which is increasing its ranks by some 87,000 agents over the coming months and years, will certainly be on the lookout for anyone trying to avoid reporting and paying taxes on their capital gains. Make sure you comply.
For all your tax reporting questions and concerns in or around Reno, Nevada, reach out to the Law Office of Scott N. Tisevich.