The long-term capital gains are gains that are determined from the sales of the quality assets that are owned for a period of over 12 months at the time of sales.
Breaking Down the Long-Term Capital Gains
The long-term capital gain or loss sum is determined by the difference in the value between the sale price and the purchase price. This number is either the net profit or loss that the investor experienced when he sold the property. Short-term capital gain is primarily determined by the net profit or loss that a capitalist experienced while selling an asset that was owned for less than a period of 12 months. The IRS (Internal Revenue Service) assigns a comparatively lower tax rate to long-term capital gains than the short term capital gains.
An individual who is bound to pay the tax will need to report the total of his capital gains earned for the year when he filed his annual tax returns because the IRS will treat these short-term capital gains earnings as tax claimed income. The Long-term capital gains are however taxed at a comparatively lower rate, which ranged from 0 to 20 per cent FOR THE YEAR 2018, as per the tax category of the taxpayer is concerned.
When we talk about capital gains losses, both short-term and long-term losses are treated in the same way. Taxpayers can claim these losses against any long-term gains they may have experienced during the filing period. These figures are all reported on tax Form no 1040.
Example of Long-Term Capital Gains
For example, imagine Sheena Sahai is filing her taxes, and she has a long-term capital gain from the sale of her shares of stock for TechNet Limited. Sheena first procured these shares in the year 2005 during the initial offering for Rs 1,75,000 and is now selling them in the year 2018 for Rs 2,20,000. She experienced a long-term capital gain of Rs 45,000, which will then be subject to the capital gains tax.
Now assume that she sold the holiday home that she availed in 2017 for a sum of Rs 80,000. She has not availed the asset for that long, so she has not gathered much equity in it. When she sold it only a few months later, she received just Rs 82,000. This offered her a short-term capital gain of Rs 2,000. Resembling the sale from her long-held shares of stock, this profit was taxed as income and added Rs 2,000 onto her existing income calculation.
If Sheena had instead sold her vacation home for Rs 78,000, experiencing a short-term loss, she could have used that Rs 2,000 to offset some of her tax liability for the R45,000 long-term capital gains she had experienced.
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