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. 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.  Learn More ⇒IRS Tax Topic 409

Capital Gains Line 13
Capital Gains Line 13 – IRS 1040

Report most sales and other capital transactions and calculate gain or loss on

Form 8949 (PDF), Sales and Other Dispositions of Capital Assets,

then summarize capital gains and deductible capital losses on

Form 1040, Schedule D (PDF), Capital Gains and Losses.

More IRS Tax Publications Related to Capital Gains

How to do Schedule D – Campital Gains

Schedule D
Schedule D
Schedule D - Instructions - Capital Gains
Schedule D – Instructions – Capital Gains
IRS Publication 525 - Taxable and Non Taxable Income
IRS Publication 525 – Taxable and Non Taxable Income

Publication 505, Tax Withholding and Estimated Tax

Form 1040, Schedule D (PDF), Capital Gains and Losses

Publication 550, Investment Income and Expenses

551 – Basis of Assets

Publication 544, Sales and Other Dispositions of Assets

Topics 701 and 703, and Publication 523, Selling Your Home.

Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. When you sell a capital asset, such as stocks, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property.

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A “paper loss” – a drop in an investment’s value below its purchase price – does not qualify for the deduction. The loss must be realized through the capital asset’s sale or exchange.

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Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. For more information on the tax rates, refer to IRS Publication 544, Sales and Other Dispositions of Assets.

If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately).

Capital gains and losses are reported on Schedule D, Capital Gains and Losses, and then transferred to line 13 of Form 1040. This year, the capital loss carryover worksheet has been removed from the Instructions for Schedule D to simplify tax preparation. However, there will be a worksheet in the 2004 Instructions to Schedule D to figure a capital loss carryover to 2004.

If you have a taxable capital gain, you may be required to make estimated tax payments. See Publication 505, Tax Withholding and Estimated Tax, for information on estimated tax.

The top tax rate on net capital gain (i.e., net long-term capital gain reduced by any net short-term capital loss) has been reduced from 20% to 15% (and from 10% to 5% for gains that would otherwise be taxed at a regular rate of 10% or 15%) for property sold or otherwise disposed of after May 5, 2003 (and installment sale payments received after that date). The reduced rate applies for both the regular tax and the alternative minimum tax. The higher rates that apply to unrecaptured section 1250 gain, collectibles gain, and section 1202 gain have not changed.

Dividends paid by most domestic and foreign corporations after December 31, 2002, are eligible for the new maximum capital gains tax rate of 15% (5% in some cases).  Qualified dividends are reported on line 9b of Forms 1040 or 1040A.

Additional information on capital gains and losses is available in Publications 550, Investment Income and Expenses, and 17, Your Federal Income Tax. You may download the publications from this Web site or order your free copies by calling 1-800-TAX-FORM (1-800-829-3676).

Taxpayers who have experienced investment or other types of financial losses should also check out these other IRS publications:

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564, Mutual Fund Distributions
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547, Casualties, Disasters, and Thefts
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527, Residential Rental Property (Including Rental of Vacation Homes)
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536, Net Operating Losses (NOLs) for Individuals, Estates and Trusts

Related Items:

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Publication 544, Sales and Other Dispositions of Assets (PDF 321K)
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Schedule D, Capital Gains and Losses (PDF 134K)
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Form 1040, U.S. Individual Income Tax Return (PDF 136K)
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Publication 505, Tax Withholding and Estimated Tax (PDF 367K)
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Publication 550, Investment Income and Expenses (PDF 516K)
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Publication 17, Your Federal Income Tax (PDF 2075K)
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Publication 564, 551 – Mutual Fund Distributions (PDF 178K)
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Publication 547, Casualties, Disasters, and Thefts (PDF 133K)
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Publication 527, Residential Rental Property (Including Rental of Vacation Homes) (PDF 187K)
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Publication 536, Net Operating Losses (NOLs) for Individuals, Estates and Trusts (PDF 213K)
How to Depreciate Property IRS Publication 946 for 2003

Source IRS Tax Tip 2004-34, Feb. 19, 2004

Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.

TITLE 26–INTERNAL REVENUE CODE  Subtitle A–Income Taxes                CHAPTER 1–NORMAL TAXES AND SURTAXES  Subchapter B–Computation of Taxable Income PART III–ITEMS SPECIFICALLY EXCLUDED FROM GROSS INCOME Sec. 121. Exclusion of gain from sale of principal residence
 Estate Planning

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Related Pages in Quotes – Subsidy – Tax Credits » MAGI – Modified Adjusted Gross Income – Line 37 »
MAGI – FAQs – What counts as Income?

Issue Number:    IRS Tax Tip 2016-33

Inside This Issue

Capital Gains and Losses – 10 Helpful Facts to Know

When you sell a capital asset, the sale normally results in a capital gain or loss. A capital asset includes most property you own for personal use or own as an investment. Here are 10 facts that you should know about capital gains and losses:

  1. Capital Assets. Capital assets include property such as your home or car, as well as investment property, such as stocks and bonds.
  2. Gains and Losses. A capital gain or loss is the difference between your basis and the amount you get when you sell an asset. Your basis is usually what you paid for the asset.
  3. Net Investment Income Tax. You must include all capital gains in your income and you may be subject to the Net Investment Income Tax if your income is above certain amounts. The rate of this tax is 3.8 percent. For details, visit IRS.gov.
  4. Deductible Losses. You can deduct capital losses on the sale of investment property. You cannot deduct losses on the sale of property that you hold for personal use.
  5. Limit on Losses.  If your capital losses are more than your capital gains, you can deduct the difference as a loss on your tax return. This loss is limited to $3,000 per year, or $1,500 if you are married and file a separate return.
  6. Carryover Losses. If your total net capital loss is more than the limit you can deduct, you can carry it over to next year’s tax return.
  7. Long and Short Term.  Capital gains and losses are treated as either long-term or short-term, depending on how long you held the property. If you held it for one year or less, the gain or loss is short-term.
  8. Net Capital Gain.  If your long-term gains are more than your long-term losses, the difference between the two is a net long-term capital gain. If your net long-term capital gain is more than your net short-term capital loss, you have a net capital gain.
  9. Tax Rate.  The tax rate on a net capital gain usually depends on your income. The maximum tax rate on a net capital gain is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain.
  10. Forms to File. You often will need to file Form 8949, Sales and Other Dispositions of Capital Assets, with your federal tax return to report your gains and losses. You also need to file Schedule D, Capital Gains and Losses, with your tax return.

For more information about this topic, see the Schedule D instructions and Publication 550, Investment Income and Expenses. You can visit IRS.gov to view, download or print any tax product you need right away.

Each and every taxpayer has a set of fundamental rights they should be aware of when dealing with the IRS. These are your Taxpayer Bill of Rights. Explore your rights and our obligations to protect them on IRS.gov.

Additional IRS Resources:

Capital Gains and Losses – 10 Helpful Facts to Know

When a person sells a capital asset, the sale normally results in a capital gain or loss. A capital asset includes inherited property or property someone owns for personal use or as an investment.

Here are 10 facts that taxpayers should know about capital gains and losses:

  1. Capital Assets. Capital assets include property such as a home or a car. It also includes investment property, like stocks and bonds.
  2. Gains and Losses. A capital gain or loss is the difference between the basis and the amount the seller gets when they sell an asset. The basis is usually what the seller paid for the asset. For details about inherited property, see IRS Publication 544, IRS Publication 550 and IRS Publication 551.
  3. Net Investment Income Tax. Taxpayers must include all capital gains in their income. Capital gains may be subject to the Net Investment Income Tax if the taxpayer’s income is above certain amounts. The rate of this tax is 3.8 percent. For details, visit IRS.gov.
  4. Deductible Losses. Taxpayers can deduct capital losses on the sale of investment property but can’t deduct losses on the sale of property they hold for their personal use.
  5. Limit on Losses. If a taxpayer’s capital losses are more than their capital gains, they can deduct the difference as a loss on their tax return. This loss is limited to $3,000 per year, or $1,500 if married and filing a separate return.
  6. Carryover Losses. If a taxpayer’s total net capital loss is more than the limit they can deduct, they can carry it over to next year’s tax return.
  7. Long and Short Term. Capital gains and losses are either long-term or short-term. It depends on how long the taxpayer holds the property. If the taxpayer holds it for one year or less, the gain or loss is short-term.
  8. Net Capital Gain.  If a taxpayer’s long-term gains are more than their long-term losses, the difference between the two is a net long-term capital gain. If the net long-term capital gain is more than the net short-term capital loss, the taxpayer has a net capital gain.
  9. Tax Rate. The tax rate on a net capital gain usually depends on the taxpayer’s income. The maximum tax rate on a net capital gain is 20 percent. However, for most taxpayers a zero or 15 percent rate will apply. A 25 or 28 percent tax rate can also apply to certain types of net capital gain.
  10. Forms to File. Taxpayers often will need to file Form 8949, Sales and Other Dispositions of Capital Assets. Taxpayers also need to file Schedule D, Capital Gains and Losses, with their tax return.

For more on this topic, see Schedule D instructions. Taxpayers can visit IRS.gov to get tax forms and documents anytime.

All taxpayers should keep a copy of their tax return. Beginning in 2017, taxpayers using a software product for the first time may need their Adjusted Gross Income (AGI) amount from their prior-year tax return to verify their identity. Taxpayers can learn more about how to verify their identity and electronically sign tax returns at Validating Your Electronically Filed Tax Return.

Additional IRS Resources:

 

2 comments on “Capital Gains – Line 13

  1. If I sell my home and have a capital gain (even after the Sec 121 exclusion), will that gain affect my Modified AGI? Will that gain count toward the income which could push my income high enough to require me to pay back my State Exchange subsidy?

    • I believe so. I’m not a tax attorney. I will check with one though or a CPA. In the meantime, do NOT cite my reply, but check the links to actual law or government publications.

      Here’s more on the Section 121 exclusion, sale of a home – primary residence.

      Gross income shall not include gain from the sale or exchange of property if, during the 5-year period ending on the date of the sale or exchange, such property has been owned and used by the taxpayer as the taxpayer’s principal residence for periods aggregating 2 years or more.
      (b) Limitations….

      So, whatever you have as Capitol Gains in Schedule D, gets added to line 13 of your 1040 and thus increases line 37 where MAGI – Adjusted Gross Income starts then add in, non taxable Social Security, foreign income and exempt interest. See our page on MAGI – Modified Adjusted Gross Income.

      Check out Sale of your home publication #523

      Learn more about paying back subsidies when you do your taxes in Publication 974

      Get free quotes and calculate subsides here.

      It’s possible to that you might have penalties in addition to paying back the subsidy.

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