If you sell shares of stock, your house, or other items you own, you’ll probably have a capital gain or loss. Generally, that’s the difference between what you paid and what you receive.
Most capital gains are taxable and some capital losses are deductible. But did you know that not all capital gains are taxed equally?
Here’s a quick overview of the major differences.
- The first distinction is between short-term and long-term capital gains. If you’ve owned an asset for 12 months or less, your gain is short-term. You’ll pay tax at ordinary income tax rates which go as high as 35%. If you’ve owned the asset more than 12 months, you’ll pay tax at the lower, long-term capital gain rates.
- For most financial assets such as stocks or bonds, the long-term rates are 15% or 5% depending on your tax bracket.
- If you sell your personal residence, you may qualify to exclude part or all of the gain from tax. On any amount not excluded, you’ll generally pay tax at a 15% rate, or 5% if you’re in the lower two tax brackets.
- If you sell rental or commercial real estate, you’ll generally pay at a 25% rate to the extent your gain is a recapture of depreciation you’ve taken in the past.
- If you sell assets such as antiques or collectibles, your long-term gain will be taxed at 28%. Collectibles include items such as stamps, coins, and gems.
Figuring the amount of your capital gain can be complicated because many special rules apply. If you expect a capital gain in 2006, please contact our office for advice. We can help you minimize the tax consequences.
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