Different types of Capital gain
Posted on:3/30/2006
| There are three types of capital gains. |
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.
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 US, unrealized capital gains are not subject to income tax.
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.
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