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How to Report Capital Gains for Tax Purposes

By Edited Nov 13, 2013 1 4

Making Stock Profits

When a party sells stock for more than they bought it for, generally, they make a profit. That is, if fees charged by the broker and other fees associated with the transaction don't eliminate the potential for making that profit.


Tax Consequences of Selling a Home

Individuals can also make a profit on the sale of real estate, jewelry, cars, art, furniture and many other items. All these profits are taxable. Persons own a rental property as part of their primary residence should consider what portion of their real estate is considered rental property in order to calculate taxes owed.

There is an exclusion of $250,000 on the sale of a primary residence for single persons. This is $500,000 for married couples and is known as the home seller's tax exclusion.

Homeowners have to meet the ownership and use tests. That is, they have to own and live in the home for at least 2 years and be absent from the home for a period not exceeding 10 years.


Defer Capital Gains Tax

 Capital gains tax is often thought of as a deferred tax, because no tax is paid until the stock or other item is sold. If an individual dies before selling their stock, or real estate, for example, at a profit, their heirs don't have to pay capital gains tax.

If an asset is held for one year or less, part I of schedule D on the IRS form 1040 would be used to report the capital gains. If an asset is held for over a year, part II of schedule D on the IRS form 1040 would be used to report the capital gains.


How is Rental Income Taxed

 The IRS form 1040 schedule E is used for reporting rental income. Advanced rent, rent deposits, and other expenses paid by tenants fall under the category of rental income.

The IRS form 1040 schedule E is also used for reporting rental expenses such as depreciation, property tax and repairs.

Persons may report a loss of up to $25,000 if their rental income is less than their rental expenses.


 Capital Gain Tax on Stocks

Capital gains taxes are usually calculated at a lower rate than tax on dividends and some people take this into consideration when choosing which stocks to invest in.

The tax form for reporting income through the sale of dealer equity options and futures contracts is called the IRS form 6781 and can be submitted along with the other documents via efile, once they were closed at market value on the last day of the tax year. On this form increases in value can be split under schedule D using a 60/40 ratio. A lower tax rate can be applied to 60% of the increment.


Capital Gains Tax on Forex


Some persons use the 6781 to report profits from trading on the Forex market. To be defined as a trader by the IRS, an individual must seek to profit from the market movements in the prices of securities and not from capital appreciation or dividends.


Accounts managed by other people will not be used to classify an individual as a trader. An individual must also carry out trading activities on a regular basis.Trading is expected to be the sole and primary income earning activity. Traders can offset all of their losses against income.





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Jun 8, 2010 3:22am
Great article! And very precise information. Thanks!
Nov 6, 2010 7:10am
Thank you Askformore!
Jul 1, 2013 6:14pm
Good information. Might I suggest you put a few lines on how taxes are on dividends. They are highly sought after by investors as a form of passive income and an insurance that the investment will be profitable even during Bear markets.
Jul 2, 2013 2:11pm
Thanks for that suggestion SocialGenius.
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