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In finance, a capital gain is profit that results from the appreciation of a capital asset over its purchase price. If the price of the capital asset has declined instead of appreciated, this is called a capital loss. Capital gains occur in both real assets, such as property, as well as financial assets, such as stocks or bonds. Finance studies and addresses the ways in which individuals, businesses, and organizations raise, allocate, and use monetary resources over time, taking into account the risks entailed in their projects. ...
Profit, from Latin meaning to make progress, is defined in two different ways. ...
In accounting, a capital asset is an asset that is recorded as capital - that is, property that creates more property, e. ...
Property designates those things that are commonly recognized as being the possessions of a person or group. ...
This article does not cite its references or sources. ...
In finance, a bond is a debt security, in which the issuer owes the holders a debt and is obliged to repay the principal and interest (the coupon) at a later date, termed maturity. ...
U.S. tax ramifications
- See also: Capital gains tax
Under the United States Tax Code's section 1222, gain or loss from sale or exchange of a capital asset is a capital gain or loss. Per IRS Tax Topic 409, "Almost everything you own and use for personal or investment purposes is a capital asset. Examples are your home, household furnishings, and stocks or bonds held in your personal account." If a person sells a capital asset for more than he or she paid for it, the gain is taxable. However, for personal-use capital assets, such as a personal automobile, a capital loss is not deductible. A capital gains tax (abbreviated: CGT) is a tax charged on capital gains, the profit realized on the sale of an asset that was purchased at a lower price. ...
Long term vs. short term Generally, appreciated capital assets that are sold after being held more than one year (long-term capital gain) will be taxed at a maximum rate of 15%. For the sale of collectibles and small business stock, the capital gain rate is 28%. Appreciated capital assets that are sold after being held less than one year (short-term capital gain) will be taxed as ordinary income, which rises as high as 35% in the progressive tax system. Under the United States Internal Revenue Code, the type of income is defined by its character. ...
Realized vs. unrealized Capital gains can be either realized or unrealized. Realized capital gains occur when the actual sale of the asset returned more money than the purchase price. Unrealized capital gains occur when it is known that the asset has appreciated in value, but the asset has not been sold yet; the gain is only potential.
Currently in the U.S., unrealized capital gains are not subject to income tax except in the case of zero coupon bonds. An income tax is a tax levied on the financial income of persons, corporations, or other legal entities. ...
Zero coupon bonds are bonds which do not pay periodic coupons, or so-called interest payments. ...
Capital loss offset In taxation in the United States, capital gains are subject to capital gains tax, but if a taxpayer has suffered from capital losses in the same year, he can offset the gains with the losses to reduce his taxable income. If the losses exceed the gains, then up to $3,000 may be deducted to offset ordinary income per year. Any capital loss exceeding the $3,000 per year limit may be "Carried Forward" to the next year and claimed as a capital loss on that years tax return etc. An individual can carry forward a large capital loss for up to 7 years claiming a $3,000 deduction each year.
Sale of principal residence A capital gain on the sale of a principal residence is afforded special treatment for Federal income tax purposes. Married sellers of a principal residence may generally exclude up to $500,000 of gain ($250,000 of gain in the case of single individuals) from gross income, provided the real estate was used as the sellers' primary residence for at least two years during the five year period ending with the date of the sale.
Other Countries where Capital Gains are taxable
References - For further information on U.S. capital gains, go to Tax Topic 409 at the IRS: http://www.irs.gov/taxtopics/tc409.html
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