What are capital Gains

What are capital Gains

The What are capital Gains The IRS considers just about everything you own and use for personal purposes or for investment a capital asset. Examples it gives are your home, household furnishings, and stocks or bonds held in your personal account. It divides capital gains into three foundational taxation

categories: long-term, midterm, and short-term capital gains. If you hold an asset for more than one year before you dispose of it, your capital gain is a long-term gain. If you hold it for one year or less, your capital gain is considered a short-term gain. And although that definition came directly from the IRS, the agency also says that the longterm

capital gains rate is based on an 18-month holding period. When you sell a capital asset, the difference between the amount for which you sell it and your cost or adjusted basis is a capital gain or a capital loss. In the case of real estate investments, most people take depreciation and make improvements to the property over time so the basis of the property changes each year. In a normal property investment situation, two forces are at work creating a gain on the property

First, appreciation increases the fair market value of the property; and, second, depreciation taken on the property over the years correspondingly reduces the property’s basis and thus adds another component of taxable gain when the property is eventually sold.

What are capital Gains