What are capital gains?

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Capital gains are profits that result from the appreciation of a capital asset. The gain comes from the appreciation of the asset in relation to its purchase price. If the item’s value has depreciated since its purchase, this is called a capital loss. Capital gains can occur on assets such as property or property, as well as on financial assets such as stocks or bonds.

Almost everything you use and own is a capital asset and may be subject to tax. Anything you sell for more than the actual purchase price, resulting in capital gains, may be taxable. A capital loss is not tax deductible.

The capital gain tax is variable depending on the length of time you have held the asset. If the asset has appreciated in value and is sold within one year of purchase, the tax rate is the same as for ordinary income, which can increase to 35% under the progressive taxation system. This is considered short-term capital gain. If the valued asset is sold after one year of purchase, the profit is considered long-term capital gain. The asset will be taxed at the maximum rate of 15%.

Capital gains are realized or unrealized. Unrealized assets are known to have appreciated but have not yet been sold. Capital gain is a potential value. A realized capital gain occurs when an asset has appreciated in value and has been sold.

While capital gains are subject to tax, there is also a way to offset any capital losses you may have incurred during the year. This is called capital loss compensation. You can offset your capital gain against capital loss tax to reduce your taxes. If losses are greater than gains, you can deduct up to 3,000 US dollars (USD) to offset ordinary income.

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Many countries have their own capital gains taxation rules. Some countries allow you to earn a certain amount of income from your capital gain until you are subject to tax. In America, an individual can exclude USD 250,000 from the proceeds from the sale of a property if the property was their primary residence for two to five years prior to the sale. The two years of residency need not be continuous, and the exception is $500,000 if a couple owned the property. There are many rules and exceptions that are clarified on the IRS website.

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