Making an investment in form of an asset is a good thing. Since almost all assets – especially real estate assets – increase overtime. Capital appreciation is a process wherein the value of your assets increases as time pass by. When you sell your assets, the excess of your assets is called the capital gain. For example, you bought a house worth fifty thousand dollars and then you’ve sold it later on for a hundred thousand dollars. The excess amount or the surplus is fifty thousand dollars, this is the capital gain. Now, if the gap between buying and selling is less than a year then this is now called a short term capital gain but if the time gap exceeds more than a year then it is called long term capital gain. Now, if you have sold the assets for lower than the amount you spent buying it then this is called capital loss. If you are from the United States, all capital gain and capital loss must be reported on your Income Tax Return.
Capital gains have applicable tax and you need to pay this to the IRS. Consult an organization that assists in financial planning. Short Term Capital Gains Like mentioned before short term capital gains is applicable to all assets sold within one year from acquiring the asset. Short term capital gains are taxed similarly as regular income. So it’s a little steeper than long term capital gains. Long Term Capital Gains Long term capital gain on the other hand is encouraged by the US government, which is why preferential tax rate is being applied. Now, the calculation for the taxable amount for this is based on Part II and Part III of schedule D. With long term capital gains, a lot of things matter like the actual price of the purchase price in the case of real estate, property taxes and all costs of improvements. With all these taken in consideration the taxable amount of your long term capital gain would be a lot less than the excess received. So if you are making any changes on your assets, be sure to write them down accordingly.
