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Capital Gains Tax

Understanding Capital Gains Tax Rates

Understanding Capital Gains Tax Rates

The capital gains tax is paid as an income tax. The capital gain tax rate is determined after the individual has taken allowable losses and deductions, before adding capital gains to their income.
Capital gains include many types of additional income, including money made at garage sales, and large sales including homes. In addition, capital gains can include income from the sale of stocks. In order to determine the actual capital gain, individuals must first take allowable deductions against the capital gain, such as capital losses.
Capital losses can include the sale of stocks, when the price of the stock was less than what was paid for the stock. However, a car which sold for less that what was paid, would not be considered a capital loss, as the value of a car depreciates. However, if the individual purchased an antique car and sold it for less than what they paid, that sale may count as a capital loss.
Once an individual has determined the full value of capital losses, they can subtract that amount from their capital gains. They may only subtract a value equal to or less than the amount of the capital gains for that year. 
However, additional capital losses can be carried over into future years and be used as a deduction until the full value of that loss has been deducted. The capital gains tax rate is then determined when the capital gains are added to the income for that year.

Capital Gains Tax Rate On Real Estate

Capital Gains Tax Rate On Real Estate

The capital gains tax rate on real estate varies according to several factors. The real estate tax will depend on whether the property sold was a primary or secondary residence, or simply a rental property. In order to reduce or eliminate the real estate tax, individuals should convert the property to a primary residence before selling it. The highest capital gains tax on real estate occurs when the property is used strictly as a rental property.
In most cases, individuals may sell their primary residence every two years and exclude various amounts from the real estate tax. In general, single individuals may deduct two hundred and fifty thousand dollars and married couples my deduct double that amount, before determining if there was a capital gain from the sale of the property.
In the past, these exclusions from the capital gains tax rate on  real estate only applied in certain circumstances, such as for the elderly. There had also been a lifetime excision which allowed individuals to deduct a certain value from the real estate tax, over their entire lifetime. 
However, in most cases, the rules have changed to allow most individuals to take advantage of more extensive exclusions and deductions. Individuals must simply live in the home as a primary residence for two years, before making the sale, in order to take advantage of exclusions and larger deductions.
 
 
United States Capital Gains Taxation (2008-2012) 

Ordinary Income         Short-term Capital         Long-term Capital
Tax Rate                      Gains Tax Rate             Gains Tax Rate
        10%                           10%                           0%
        15%                           15%                           0%
        25%                           25%                           15%
        28%                           28%                           15%
        33%                           33%                           15%
        35%                           35%                           15%
United States Capital Gains Taxation (2013+) 

Ordinary Income         Short-term Capital         Long-term Capital
Tax Rate                      Gains Tax Rate             Gains Tax Rate
        15%                           15%                           10%
        28%                           28%                           20%
        31                          31%                           20%
        36                          36%                           20%
      39.6                        39.6                         20%




The Best Deferment Strategies You Should Know

The Best Deferment Strategies You Should Know

There are several ways that investors can lower their capital gains rate of taxes. Whenever possible, investors should take part in long term investments. Long term investments must be held by the investor for at least three hundred and Sixty five days after the date that the investment was purchased. The day of purchase does not count toward the year. 
If however, investors sell an investment before that year is up, they will likely have to pay a capital gains rate of taxes that matches their income tax rate. Investors can offset their capital gains rate of taxes by deducting any capital losses. In addition, investors can defer taxes by utilizing the Section 1031 Exchange. There are many ways that investors can reduce or defer capital gain taxes, but their method will depend on their specific circumstances.
When deducting capital losses to adjust a capital gains rate of taxes, investments must be of a similar length. Short term capital losses can be subtracted from short term capital gains and long term capital losses can be subtracted from long term capital gains. The Section 1031 Exchange allows investors to defer capital gain taxes if they take specific actions with the income from their investment. 
Investors must take their total profit, or capital gain, and invest that money into a similar property, or property that is of similar value to that which was sold. However, many experts  warn that it can be extremely difficult to find a similar property as a replacement, especially when it is a business. Investors must also find a similar structure, of the same value, within one hundred and eighty days from the date that they made a profit from the other property. 
In addition to making the purchase within that time frame, there are other rules investors must follow in order to lower their capital gains rate of taxes or to defer those taxes. However, savvy investors should become aware of all of the rules that govern allowances for deferment on capital gains taxes.
In order for investors to defer or reduce their capital gains taxes, they must examine federal and state tax laws that apply to their specific circumstances. Each investor will have circumstances that differ, which means that different laws may apply. In addition, capital gain rate of taxes will vary according to an individuals income, if the profit was made from a short term investment. In order to reduce capital gains taxes, investors must keep records to be sure that they take full deductions for capiThere are many ways that investors can attempt to reduce, or defer, capital gains tax. 
Investors should become aware of all applicable taxes before they sell any of their investments. In some cases, factors as small as selling an item one day too early, can have a huge impact on an individuals capital gain tax. For example, long term investments are taxed at a lower rate, and that rate begins three hundred and sixty five days after the date of purchase. The date of purchase is not counted for the required time frame, and that one day can have a huge impact on the capital gain tax rate of an investor. The only way that a an investor can generally be successful in avoiding capital gain tax completely, is to not sell an item for profit. 
Investors can also be successful in avoiding capital gain taxes on property, if they purchase a similar property within one hundred and eighty days. In addition, investors can be successful in avoiding capital gains taxes if they convert an investment property into a primary residence for at least two years before they sell it. There are many ways that investors can be found deferring or avoiding the capital gain tax.
Investors that are avoiding the capital gain tax by purchasing a similar property to the one that was sold, can only take advantage of the loophole every two years. Yet, taking advantage of the 1031 Exchange, has helped many investors be successful in repeatedly avoiding capital gains tax.  Investors can also continue to deduct unused portions of capital losses indefinitely. 
Capital loses do not expire and since there is a maximum allowable limit for each tax year, those losses rollover and can be utilized in future tax years. Investors may also give money to a charity in order to reduce capital gains taxes. Charitable donations are a great way for investors to reduce their capital gain tax rate by reducing their actual income. The investor can also sell a property to a buyer that will make payments directly to the seller.
By avoiding a mortgage company, the buyer and the seller will likely enjoy significant savings. The seller then has to count the payments made in each year, toward their capital gains tax for that tax year. Hoverer, this type of sale can be dangerous because there is no protection against the buyer defaulting on the payment plan.
There are many deferment strategies available to investors that are facing a large capital gains tax bill. There are many intervening factors that will determine what the best strategy is for each investor. Investors will have business characteristics and tactics that will directly effect what the best strategy is for them. Like any tax law, capital gain tax laws should be studied by all investors so that they can be sure to enjoy the greatest benefits from tax rules that apply to their specific circumstance.
al gain losses.

Deferring and Reducing Capital Gains Taxes

Deferring and Reducing Capital Gains Taxes

There are several ways that investors can lower their capital gains rate of taxes. Whenever possible, investors should take part in long term investments. Long term investments must be held by the investor for at least three hundred and Sixty five days after the date that the investment was purchased. 
The day of purchase does not count toward the year. If however, investors sell an investment before that year is up, they will likely have to pay a capital gains rate of taxes that matches their income tax rate. Investors can offset their capital gains rate of taxes by deducting any capital losses. In addition, investors can defer taxes by utilizing the Section 1031 Exchange. There are many ways that investors can reduce or defer capital gain taxes, but their method will depend on their specific circumstances.
When deducting capital losses to adjust a capital gains rate of taxes, investments must be of a similar length. Short term capital losses can be subtracted from short term capital gains and long term capital losses can be subtracted from long term capital gains. The Section 1031 Exchange allows investors to defer capital gain taxes if they take specific actions with the income from their investment. Investors must take their total profit, or capital gain, and invest that money into a similar property, or property that is of similar value to that which was sold.
However, many experts  warn that it can be extremely difficult to find a similar property as a replacement, especially when it is a business. Investors must also find a similar structure, of the same value, within one hundred and eighty days from the date that they made a profit from the other property. In addition to making the purchase within that time frame, there are other rules investors must follow in order to lower their capital gains rate of taxes or to defer those taxes. However, savvy investors should become aware of all of the rules that govern allowances for deferment on capital gains taxes.
In order for investors to defer or reduce their capital gains taxes, they must examine federal and state tax laws that apply to their specific circumstances. Each investor will have circumstances that differ, which means that different laws may apply. In addition, capital gain rate of taxes will vary according to an individuals income, if the profit was made from a short term investment. In order to reduce capital gains taxes, investors must keep records to be sure that they take full deductions for capital gain losses.

A History of Capital Gains Tax You Should Know

A History of Capital Gains Tax You Should Know

The United States Tax code includes a variety of scenarios in which citizens are expected to pay taxes. For example, the document will list tax rates, including capital gains tax. Although the Federal government, through the Executive branch, has the power to collect taxes in certain circumstances, so does the government of each individual state.
 Although the federal capital gains tax is consistent, each state will have its own tax laws that reference capital gains taxes. On the federal level, capital gains taxes are offset by certain losses. However, some losses can not be used to offset income that is considered for the capital gains tax.
Capital gains can be profit  that a person makes from the sale of a house. If that individual receives an amount higher than what they paid, that is considered a capital gain. If however, they make less money, it is a capital loss. Capital losses can be deducted indefinitely, against any income that is considered for capital gain taxes. 
The sale of any property, including items such as furniture and sporting equipment, is considered a capital gain. Yet, when an individual sells them for less than what they paid, they can not take a loss against their capital gain taxes. There are actually very few items that can be used to offset income in reference to the capital gains tax. Vehicles that are sold for less than what was paid, for instance, can not be used as a loss for capital gain taxes. However, a home  that sells for less than what was paid, can be used as a loss against capital gains taxes. 
Capital assets that result in a profit over and above what was paid for an item, result in a larger capital gain tax. Currently, homeowners can make a certain profit in items and not have to pay a capital gain tax, but those laws are likely to change in the immediate future. In order to avoid paying capital gain taxes on the sale of a house, the homeowners had to have resided in that home for at least two of the last five years. That tax law went into effect with Taxpayer Relief Act of 1997. 
Prior to that Act, homeowners had to purchase like property, or a property that had the same value, in order to avoid paying a capital gain tax. Currently, capital gains taxes are based on whether an investment is long term or short term. In order for an investment to be considered long term, the owner must have held that investment for at least a year. The day after the purchase, counts as the first day of ownership.
Capital gains taxes (CGT) are avoidable if investors plan ahead. For example, long term investments incur a lower tax rate. In addition, investment properties can incur lower taxes if the owners reside in those homes for a certain period of time before they sell them. In order to pay the lowest capital gain tax, investors should learn all applicable tax laws, including the laws in their state.

Recent Attention and Changes to Tax Laws

Recent Attention and Changes to Tax Laws

In the 1997, the Taxpayer relief Act allowed many taxpayers to enjoy tax breaks that were not previously available to investors. For example, before that Act, taxpayers were forced to pay a high percentage of capital gain taxes on property that was sold for profit. Now, investors are allowed to make a certain profit, $250,00 per individual, and avoid paying capital gain taxes. Taxpayers can even take advantage of that rule more than one time in their lifetime. Previously, tax payers could only enjoy a tax break like that, once during their lifetime. The Taxpayer Relief Act of 1997, allowed for many changes in tax laws, including large reductions in capital gains taxes for many individuals.
The inheritance tax is set to expire this year, which effectively allows individuals to inherit without paying taxes. In fact, the sunset provision which covered the previous Taxpayer Relief Act, is set to expire in 2010. A Bill that would have continued that tax relief, and other tax laws, failed to pass in 2007. Although an additional Bill was introduced in 2009, it has not yet passed and is currently under review. As it stands now, many taxes are set to rise unless some action is taken on a Bill that would extend tax breaks, or create new ones. If no new changes take effect, the capital gains tax rate will revert to what it was before the Tax Relief Act went into effect.  
Rates that remain in effect through 2010, because of the Tax Reconciliation Act, will expire at the end of the year. In essence, Capitol gain taxes are set to increase significantly. After 2010, short term investments, will be taxed at a capital gains tax rate that matches an individuals income tax rate. That rate can be as high as almost forty percent. 
Long term investments will  generally have a capital gains tax rate of around twenty percent. In addition, investments that are not sold for at least five years, will be taxed at a lower rate then other long term investments. Yet, the capital gains tax rate is generally on a few percentage points lower. Investors that have properties that are extremely valuable, may enjoy added benefits from holding onto their investments for longer than five years.
The state of the economy in the United States, has forced many individuals to focus on tax laws. Many families are making great efforts to save money in every area possible. Unfortunately, some investors are not aware of the recent changes that are likely to take effect within capital gain tax rates. Especially now, small changes in the way investors sell their property, can have a big impact on their capital gains tax rate. In fact, investors can enjoy a significant savings if they become knowledgeable on the many changes taking place with capital gain taxes.

A Helpful Overview of Capital Gains Taxes

A Helpful Overview of Capital Gains Taxes

A capital gain tax in incurred on profit made when an investor sells almost any type of property. While houses, boats and vehicles are included under the capital gains tax, so to, are items such as furniture and sporting equipment. Basically, any item that is sold for a profit, must be counted toward an individuals capital gain tax. However, a loss on many items, cannot be deducted from profit that is consider capital gain. Items such as houses, stocks and bonds, can be counted as a loss towards a capital gain tax. 
In fact, those items can be counted toward a loss indefinitely. For example, a person that deducts the maximum loss for a year, can carry over that loss to offset any capital gains in the following years.  Short term investments are taxed at a higher rate than long term investments. However, short term losses can help offset the higher taxes on short term capital gains. In addition, long term losses can help to offset capital gain taxes on long term profits from investments. 
Any losses can be carried over and can be used indefinitely to offset capital gains, or even regular income, until the full amount of a loss has been deducted from taxes. Investors often search for ways to avoid, or defer capital gain taxes. There are many strategies and smart investors will learn those strategies before selling any property. 
For investors that wish to utilize these strategies, they must follow specific and strict rules, which is impossible once the sale has already been completed. Recent changes in tax laws are likely to increase capital gain tax rates, unless a new Act is passed soon.
History:Current Rates:Deferring/Reducing:
Investors can defer capital gains taxes in very specific circumstances. A business owner that sells a building, may defer capital gain taxes if they buy a similar property within one hundred and eighty days of the date of sale. However, investors must use the entire profit from the previous sale to purchase the new property, of they do not qualify for deferment under this tax rule. There are a list of other factors that can effect an investors ability to defer capital gains taxes utilizing this tax rule.
 For each investor, there are a different set of rules that may apply in order to allow them to deffer paying a capital gains tax. In addition, there are many ways that investors can reduce their capital gain tax rate. Profit made form long term investments, rather than short term investments, is taxed at a lower rate. In additional investors should be sure that they deduct capital losses from capital gains. Although investors may meet the maximum capital loss deduction in a given year, they can carry over additional losses into future years. Capital losses can be deducted indefinitely, until the full amount has been deducted.

Deferment Strategies: 
There are a number of deferment strategies available to investors that are facing taxes on capital gains. First, investors must always remember to keep accurate records regarding all capital losses, as they can be deducted from any capital gains. In addition, business owners that sell a property, can avoid paying a capital gain tax if they purchase a similar property in the immediate future. 
However, every dollar earned from the original property, must be invested in the new property in order for an investor to avoid the capital gain tax. There are also simple methods of voiding capital gain taxes, such as avoiding the sale of items for profit. However, for many, that option is not realistic. Investors can reduce their capital gains tax by donating money to charity, or by subtracting any capital losses incurred.
Criticisms:
There are many criticisms about the capital gain tax. There are rules that regulate which items can be considered under capital gains and losses. Many items that are considered under capital gains, can not be deducted under capital losses. In other words, the profit from a sale of items that is considered under a capital gain, may not necessarily be allowed to be deducted under a capital loss. For example, an individual that sells a piece of furniture for more than they paid, must count that profit under capital gains. 
Yet, that same item sold for a loss, can not be deducted as a capital losses. Only certain items, such as stocks, qualify under both capital gains and capital losses. In addition, tax laws do not take inflation into consideration for the rates that apply to capital gains taxes. For investments that are very long term, the rates are no different than an individual that invested for five years. Obviously, a home that is owned for twenty years, is likely to have increased in value more than one held for five years. 
Most of the increase in value is based simply on inflation. The rate of inflation is not considered under capital gain tax rules, and the consumer pays the same tax rate that would apply to a homeowner that made a profit after only five years, which would likely not be based on inflation.

Recent Attention and Changes: 

There are many changes set to take effect on tax laws, including the capital gains tax rate. The Taxpayer Relief Act and the Tax Reconciliation Act, are both set to expire. Although a sunset provision allowed continued tax relief, that relief is set to expire in 2010. With that expiration, some individuals may enjoy tax breaks. For example, the inheritance tax is set to expire if no provisions are made. 
Yet, many people believe that the federal government will not allow that lapse to occur. When inheritance tax is addressed, it is likely that the capital gains tax will also be addressed. Although, it is not known if those taxes would be lowered, or stay on the course that allows those tax rates to rise. Currently, the capital gains tax rate is set to match that which was in existence before the Taxpayer Relief Act went into effect.

Criticisms of Capital Gain Taxes

Criticisms of Capital Gain Taxes

The capital gain tax can be applied to any profit made by selling almost any personal item. While there are obvious capital gains, such as the profit from the sale of a home, there are some gains that are not as obvious. For example, an individual that has a garage sale and makes money from gifts they have received, such as a softball bat, would be required to report that income under the capital gain tax. 
There are also capital gains taxes imposed on stocks and bonds, and other similar investments. However, capital gains and losses can get rather confusing. Although many items can be counted toward a profit, or capital gain, the list of capital losses is significantly shorter. Profit from the sale of items like homes can be counted under capitals gains and losses. However, profit from the sale of items such as vehicles can only be counted under capital gains.
Many taxpayers are perplexed by the list of items that are considered under both capital gains and losses. There is controversy as to why the government is able to consider items as capital gains, that can not be consider under capital losses for the taxpayer. For some items, the distinction is clear. The taxpayer should expect the value of certain items to depreciate. Most vehicles, are likely to be worth less money in the long term. 
Conversely, if a vehicle is sold for more that what the taxpayer paid, they are expected to pay a capital gain tax on the sale of that item. Many taxpayers believe that items should be included on both capital gains and losses, or under neither. In other words, taxpayers are outraged that the government is able to make money of off profit when taxpayers are not able to deduct those same items as a capital loss. 
The only way that a taxpayer can completely avoid the capital gain tax, is to never sell any items for a profit. In some ways, the capital gain tax in considered a volunteer tax, because tax payers are not required to sell items for a profit. There is also controversy because individuals are forced to pay a flat fee on income, regardless of the rate of inflation. For example, a home that was purchased twenty years ago, has certainly gone up in value, mostly due to inflation. Yet, the rate of inflation is not considered under the rules that govern taxes for capital gains and losses.
Like other taxes, controversy surrounds the capital gain tax. The rules can be confusing when determining taxes on capital gains and losses. The rate of inflation is not taken into account when taxpayers make a profit from an investment, no matter the length of the investment. 
An individual that has had a home for fifty years, and sells that home, is likely to make a large profit. The individual would be expected to consider that profit under their capital gain taxes. In order to make the rules regarding capital gain taxes fair, the government needs to take two factors into account. The rate of inflation should be considered under tax rules. Items that are considered as a capital gain, should also be allowed to be considered under a capital loss, in order to make the tax rules fair for taxpayers.

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