How Do Capital Gains and Losses Impact Your Taxes?

What Are Capital Gains and Capital Losses?

Capital gains and capital losses occur when you sell an asset, such as stocks, real estate, or other investments. A capital gain is the profit you make when you sell the asset for more than you paid for it. A capital loss is the opposite—when you sell for less than what you paid.

There are two types of capital gains and losses:

• Short-term: Assets held for one year or less. These gains are taxed at ordinary income tax rates.
• Long-term: Assets held for more than one year. These are taxed at reduced rates, typically 0%, 15%, or 20%, depending on your income.

Capital gains must be reported on your tax return in the year the asset is sold. You’ll receive a Form 1099-B from your broker summarizing your sales. Gains are reported on Schedule D (Form 1040).

If you have more losses than gains, you can deduct up to $3,000 of excess losses ($1,500 if married filing separately) from your other income. Unused losses can be carried forward to future tax years.

Tracking your cost basis (what you paid for the asset, including fees) is key to calculating accurate gains or losses. Remember: you don’t pay tax on gains until the asset is sold.

This entry was posted on Sunday, April 6th, 2025 at 8:42 pm and is filed under Deductions. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.