Do I have to pay tax to the IRS on capital gains?

Yes, you must report capital gains on your tax return. Almost everything you own and use for personal purposes, pleasure, or investment is a capital asset. When you sell or trade a capital asset, generally the difference between the amount you paid for it and amount you sell or trade for it is a capital gain or capital loss that must be reported on your tax return.

Capital gains and capital losses are classified as long term if you’ve held the property for more than one year or short term if you’ve held the property for one year or less.

Use the table below to determine whether your gain or loss is capital or ordinary and on what tax form to report it.

Capital Gain and Loss Information Table

If you sold...	Your gain is...	Your loss is...	Report it on...
Stocks, Bonds, Mutual Fund shares, or land held for investment purposes	Capital Gain. See Holding Periods.	Capital Loss. See Holding Periods.	Form 1040, Schedule D
Accounts or Notes receivable acquired in the ordinary course of business or from sales of inventory or property held for sale to customers. Inventory of a business held for sale to customers.	Ordinary income.	Ordinary loss.	Form 1040, Schedule C if self-employed; Schedule F if a farmer; Form 1065 if a partnership; Form 1120/1120-S for a corporation.
Depreciable: residential rental property, cars, trucks, computers, machines, fixtures, equipment, used in your business.	IRC section 1231 determines whether the gain is ordinary income or capital gain.	Ordinary loss if there is a net IRC section 1231 loss.	Form 1040, Form 4797
Personal residence, autos, jewelry, furniture, art, coin or stamp collections, held for personal use.	Capital Gain. See Holding Periods.	Not tax deductible. Although profits are taxable, losses are not tax deductible.	Form 1040, Schedule D

The table below shows which tax form to use to report capital gains based upon their holding period.

Capital Gain Holding Periods

Asset Held for...	Your capital gain is...
A year or less	Short term. Report this on Form 1040, Part I of Schedule D.
More than a year	Long term. Report this on Form 1040, Part II of Schedule D.

Related tax information about capital gains

Tax Directory Topics:
How much in capital losses can I deduct on my tax return?
What does the term "basis" mean?
Income Related Questions and Answers

IRS publications about capital gains:
For further information about capital gains refer to IRS Publication 17,Your Federal Income Tax, or Tax Topic 409, Capital Gains and Losses. For more information on the maximum tax rate, refer to IRS Publication 544,

Sales and Other Dispositions of Assets. To determine if you have a capital gain or capital loss, you must know the basis of the asset you sold. More information on basis and adjusted basis can be found in Tax Topic 703, Basis of Assets, or IRS Publication 551,

Basis of Assets. Please read this IMPORTANT Editor's Note regarding navigating IRS publications with Adobe Acrobat Reader.
IRS publications can also be ordered by calling 1-800-829-3676.

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