1. The Capital Gains Tax And You
The capital gain tax is a tax on the capital gains of anything you own. What does that
mean? It means that if the value of your property goes up from the amount you bought it
for that difference is what is called the capital gain and is the taxable amount. As an
example, if you have item A with a value of $100 and it goes up in value to say $200 the
$100 growth in value is the capital gain and is thus taxable.
That being said, just because something has grown in value doesn’t mean it is taxed
automatically. After all, you haven’t gotten the money for it yet so how can you be taxed
already is probably what you’re thinking. That’s precisely true; as long as you haven’t
realized that gain you can’t be taxed for it. This means that if you did not sell that item A
to get that $100 gain then you won’t have to pay tax for it until you sell it of course.
Most of the time, the capital gain taxis appliedwhen you sell off property such as real
estate, securities such as stocks and bonds and collectibles such as baseball cards,
coins and the like. There are two types of capital gains – long term and short term. They
are based on how long you’ve had item A for
If you have had it for over a year then its long term; anything less than a year is short
term. The tax applied will vary depending on whether it is a long term capital gain or a
short one.
There are some reliefs for that. For example, if you sell your primary residence for a
gain the IRS allows you to deduct a certain amount from the gain so you get taxed on
the lesser amount. This will vary depending on whether you file as an individual or as a
married couple filing jointly.
Try not to have a lot of short term investments, i.e. items held for less than a year.
That’s because long term investments are taxed much lower than short term ones.
Investing in a retirement account is also another since you can buy and sell securities
without having to pay for capital gains tax. Even when you use the money on your
retirement you only get taxed at the going regular income tax rate.
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