When you sell a capital asset, the difference between the basis in the asset and the amount you sell it for is a capital gain or a capital loss. Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, personal-use items like household furnishings, and stocks or bonds held as investments.
In most cases, your cost basis in an asset is simply the amount that you paid for that asset, including any brokerage commissions that you paid on the transaction.
The rate of tax charged on a capital gain depends upon whether it was a long-term capital gain (LTCG) or a short-term capital gain (STCG). If the asset in question was held for one year or less, it’s a short-term capital gain. If the asset was held for greater than one year, it’s a long-term capital gain.
An important takeaway here is that if you’re ever considering selling an investment that has increased in value, it might be a good idea to think about holding the asset long enough for the capital gain to be considered long-term.
Note that a capital gain occurs only when the asset is sold. This is important because it means that fluctuations in the value of the asset are not considered taxable events.
You use Schedule D to report capital gains and losses to the Internal Revenue Service, and you file it with the personal income tax form, the 1040. Form 8949 be filed with Schedule D.
‘Capital Loss Carryover’ is the net amount of capital losses that aren’t deductible for the current tax year but can be carried over into future tax years. Net capital losses (total capital losses minus total capital gains) can only be deducted up to a maximum of $3,000 in a given tax year or $1,500 if married filing separately. If you still have excess capital losses, you can keep carrying them over to future tax years for as many years as you need to.