Generally, the IRS requires that a capital gain or loss be reported for tax reporting purposes when a capital asset is sold or exchanged.<\/p>\n
Thus, it is important that you understand what a capital asset is. Nearly everything you own, whether for personal, business, or investment purposes, is a capital asset. Some examples are household furnishings, art work, stocks and bonds, coin and stamp collections, gems and jewelry, precious metals, vehicles and other machinery, personal residences, investment properties, and rental properties to name a few. Examples of assets that are not considered capital assets of business owners are inventory and accounts receivables.<\/p>\n
Once you have disposed of a capital asset, you need to determine the gain or loss. A capital gain or loss is the difference between the capital asset\u2019s sales price and basis. If an asset is sold for more than its basis, the result is a capital gain. Conversely, if an asset is sold for less than its basis, the result is a capital loss.<\/p>\n
Capital gains and losses are classified as long-term if the asset is held for more than one year, and short-term if held for one year or less. Long-term capital gains are taxed at a lower tax rate than short-term capital gains and thus this often influences the timing of when to sell a capital asset.<\/p>\n
All capital gains are taxable and must be reported on Form 1040, Schedule D<\/strong>. However, capital losses are deductible only if they relate to investment or business property<\/strong>. Let\u2019s look at the sale of the family car. It was purchased for $20,000 and sold a few years later for $7,500. There is an economic loss of $12,500. However, a family car is a personal asset and that economic loss is not allowed for tax reporting purposes. However, if that same vehicle had become a collector\u2019s item and appreciated in value and sold for $22,500, there would have been a $2,250 taxable gain. Thus to benefit from a loss on the sale of a capital asset, the asset must have been held for investment or business purposes. A business would be able to deduct the economic loss of $12,500 using the facts stated above.<\/p>\n Determining an asset\u2019s sales price is relatively simple. It is the value you receive for your asset. The term \u201cbasis\u201d is more complex. The basis of a capital asset is generally the cost, plus or minus adjustments such as improvements or depreciation. In order to properly reflect a capital gain or loss, you must keep records establishing:<\/p>\n If you want to discuss your business or personal tax planning<\/a>, tax preparation<\/a> and other financial concerns with an experienced tax professional, we invite you to call 610-594-2601<\/a> today to make an appointment at our Exton PA CPA office<\/a> to discuss your situation. You can also schedule a consultation at Click Here<\/a>.<\/p>\n Generally, the IRS requires that a capital gain or loss be reported for tax reporting purposes when a capital asset is sold or exchanged. Thus, it is important that you understand what a capital asset is. Nearly everything you own, whether for personal, business, or investment purposes, is a capital asset. Some examples are household […]<\/p>\n","protected":false},"author":2,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"_genesis_hide_title":false,"_genesis_hide_breadcrumbs":false,"_genesis_hide_singular_image":false,"_genesis_hide_footer_widgets":false,"_genesis_custom_body_class":"","_genesis_custom_post_class":"","_genesis_layout":"","jetpack_post_was_ever_published":false,"_jetpack_newsletter_access":"","_jetpack_dont_email_post_to_subs":false,"_jetpack_newsletter_tier_id":0,"_jetpack_memberships_contains_paywalled_content":false,"_jetpack_memberships_contains_paid_content":false,"footnotes":"","jetpack_publicize_message":"","jetpack_publicize_feature_enabled":true,"jetpack_social_post_already_shared":false,"jetpack_social_options":{"image_generator_settings":{"template":"highway","default_image_id":0,"font":"","enabled":false},"version":2}},"categories":[3],"tags":[],"class_list":{"0":"post-2149","1":"post","2":"type-post","3":"status-publish","4":"format-standard","6":"category-irs-tax-planning-ideas-tips-news","7":"entry"},"aioseo_notices":[],"jetpack_publicize_connections":[],"jetpack_featured_media_url":"","jetpack_shortlink":"https:\/\/wp.me\/p9W9tf-yF","jetpack_sharing_enabled":true,"_links":{"self":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2149","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/comments?post=2149"}],"version-history":[{"count":3,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2149\/revisions"}],"predecessor-version":[{"id":2152,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/posts\/2149\/revisions\/2152"}],"wp:attachment":[{"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/media?parent=2149"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/categories?post=2149"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/keysolutions.us\/blog\/wp-json\/wp\/v2\/tags?post=2149"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
Copyright \u00a9 2016 Keystone Financial Solutions, P.C.\u00a0 All rights reserved.\u00a0 BE SURE TO READ THE DISCLAIMER PAGE: Content in this blog is for educational purposes only and should not be considered as the rendering of tax, legal or investment advice. The publisher of this blog makes no representations as to the accuracy or completeness of any information herein, will not be liable for any errors or omissions, and shall not assume liability for any losses, injuries, or damages from the display or use of this information.<\/strong><\/h6>\n","protected":false},"excerpt":{"rendered":"