Short-term capital gains are from assets that are held for less than one year. Long-term capital gains are from assets that are held for a year or longer.
Examples of capital assets include investments such as stocks and bonds, your personal home or investment properties, household furnishings and your car. Other capital assets include timber grown on your property, coin or stamp collections, jewelry and precious metals. Your personal home may be exempt from taxes on capital gains if you owned it and used it as your primary residence for at least two years in the five years before you sold it and you haven’t excluded the gain on the sale of another property in the two-year period before the sale. [3] X Research source
Those in the 10 to 15 percent tax bracket pay 0 percent on capital gains. Those in the 25 percent, 28 percent, 33 percent, or 35 percent tax brackets pay 15 percent on capital gains. Those in the 39. 6 percent tax bracket pay 20 percent on capital gains.
You cannot use capital losses from the sale of personal property to offset capital gains.
The cost basis is also referred to as “tax basis” or simply “basis. ”
You would pay capital gains tax on the $400 profit. Since you held the stock for a period of less than a year, it would be considered short-term capital gains and be taxed at your regular income tax rate.
For example, in the scenario described above, you might be thrilled that you made $400 on the sale of that stock after only three months. However, if you are in the 35 percent tax bracket, then you would need to pay $140 in capital gains tax ($400∗. 35=$140{\displaystyle $400*. 35=$140}). Your total profit would then only be $260 ($400−$140=$260{\displaystyle $400-$140=$260}). Suppose in the same example, after 13 months, each share of stock was worth $4. 50. Your total investment would be worth $450. If you sell, you would earn a $350 profit. However, since you’ve held the stock for longer than a year, that profit is a long-term capital gain and is only taxed at a 15 percent tax rate. Your capital gains tax would be $52. 50 ($350∗. 15=$52. 50{\displaystyle $350*. 15=$52. 50}). This means your total profit after taxes would be $297. 50 ($350−$52. 50=$297. 50{\displaystyle $350-$52. 50=$297. 50}). Even though you sold the stock for a lower price, timing the sell of your stock allowed you to minimize the tax impact and make a bigger profit.
Analyze the market carefully to select the right shares to sell at a loss. Don’t give up shares in a healthy company just because prices may have dipped temporarily. You could be missing an opportunity for large profits by not holding that investment for the long-term.
