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Capital Gains Tax Rules

Every year when people go to file their taxes they may come across something that they don’t understand. One of those things may be capital gain taxes. If an individual has sold some stocks, bonds or real estate they may find themselves with a capital gain, but how do they know how these are taxed? These are just a few of the many questions that are frequently asked. Below are questions that have been asked of the Experts in regards to capital gains tax laws.

What is a capital gain and capital gains tax?

First a capital gain occurs when real estate, stocks or bonds are sold for more than the original price paid for the item. Business and individuals in the United States most pay taxes on their capital gains. The capital gain tax is for the most part taxed at a different rate than ordinary income. Capital gain tax rate is dependent upon the tax bracket which they are in at the time of purchase. There are two types of capital gains, short-term capital gains and long-term capital gains. A short-term capital gain are defined as an investment that is kept for less than a year before it is sold, and short-term capital tax is the same as the investors’ normal tax rate. Long-term capital gains are defined as investments or assets that have been kept for over a period of one year. Long-term capital tax rates are lower than short-term capital gain tax rates.

If an individual sells property in another state and receives a long term capital gain, how will they be taxed on it?

The individual will have to pay long term capital gain tax on the sale of the property for the federal end. There are long term capital gain tax rates that are bracketed, for example if an individual is in the 10-15% the long term capital gain tax is 0%. The individual will also have to pay the state in which the property is taxes on the sale of the property, as well as paying the tax on the sale of the property in the state that the individual resides in. However it is possible for taxes that the individual has paid in the state in which the property was sold to be credited for on the taxes in the state in which they live. This helps to eliminate or at the least reduce the double taxation on the income by two states.

How is long-term capital taxes figured?

The best way to explain how long-term capital gain tax is figured is to give an example. If an individual is married and is filing jointly, and the taxable income before adding in the long-term gain, is $40,000, then the individual can make $28,000 in long-term capital gains before any long-term capital gain tax is accrued. The reasoning behind this is that the federal tax bracket of up to 15% top amount of taxable income is $68,000. So $40,000 taxable income plus the long-term gain of $28,000 comes to $68,000 which is the highest amount for a couple filing jointly to not be taxed. It should also be noted that taxable income is what is left over after all exemptions and deductions have been made.

Is the capital gain tax uniform in all states?

Capital gain taxes are not at a different rate in each state. Each state taxes capital gains at the same rate and do not treat capital gain taxes specially.

Capital gains tax are taxes that are applied to the capital gains made from the sale of capital assets such as real estate, bonds, or stocks. The amount of taxes applied to a capital gain depends on the type of capital gain it is, short-term or long-term, also upon the tax bracket that the individual falls under. Each state treats capital gains the same way in regards to taxes. If an individual has a capital gain and has a question as to how this will affect their income taxes, they are always able to ask an Expert.

Ask a Tax Professional

Wallstreet Esq.
Wallstreet Esq., Tax Attorney
Category: General
Satisfied Customers: 571
Experience:  10 years experience
16356563
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