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Do I have to pay tax to the IRS on capital gains?
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| 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.
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| 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
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| 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
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| 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 |
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The
table below shows which tax form to use to report capital gains based upon their holding period. |
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| Asset Held for... |
Your
capital gain is... |
| One year or less |
Short term. Report this on
Form 1040, Part I of Schedule D. |
| More than one year |
Long term. Report this on
Form 1040, Part II of Schedule D. |
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Related tax
information about capital gains |
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How much in capital losses can
I deduct on my tax return?
What does the term "basis" mean?
Income Related Questions and Answers |
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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. |
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Ask Julian Block your IRS and tax questions! |
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If you can't find the answer to your IRS or tax question in our
web you can call former IRS Special Agent and one of the country's foremost tax attorneys, nationally syndicated columnist ("The Tax
Adviser") Julian Block. Julian is also the tax Editor of Mutual Funds Magazine, America's premier investment magazine. To
call Julian for a tax consultation click
here. |
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