5 things you should know about capital gains tax
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Capital gains aren't just for rich people
- Sales taxes, excise taxes and other taxes and fees
- Shipping and handling costs
- Installation and setup charges
In most cases, your home is exempt
- You owned the home for a total of at least two years in the five-year period before the sale.
- You used the home as your primary residence for a total of at least two years in that same five-year period.
- You haven't excluded the gain from another home sale in the two-year period before the sale.
Length of ownership matters
- The tax bite from short-term gains is significantly larger than that from long-term gains - typically 10-20% higher.
- This difference in tax treatment is one of the advantages a "buy-and-hold" investment strategy has over a strategy that involves frequent buying and selling, as in day trading.
- People in the lowest tax brackets usually don't have to pay any tax on long-term capital gains. The difference between short and long term, then, can literally be the difference between taxes and no taxes.
Capital losses can offset capital gains
- If you have $50,000 in long-term gains from the sale of one stock, but $20,000 in long-term losses from the sale of another, then you may only be taxed on $30,000 worth of long-term capital gains.
- $50,000 - $20,000 = $30,000 long-term capital gains
Business income isn't a capital gain
- The money you pay out for items is a business expense.
- The money you receive is business revenue.
- The difference between them is business income, subject to employment taxes.