Capital gains tax guides

Every guide on CapitalGainsTax.com, grouped by topic. Each one opens with a direct answer, then the rules, a worked example and the sources it is built on.

How capital gains are taxed

You calculate your gain by subtracting your adjusted basis from your amount realized.

Short term vs long term capital gains and the holding period

Your capital gain or loss is generally short term if you held the asset for one year or less and long term if you held it for more than one year.

Capital gains tax rates and brackets

Your holding period generally determines whether your capital gain is short term or long term, but beginning in 2018, certain gains relating to applicable partnership interests require a holding period of more than three years for long term treatment.

Netting capital gains and losses

You classify your capital gains and losses as short term or long term to calculate your net capital gain or loss.

Capital loss limits and carryovers

You can deduct capital losses up to your capital gains, plus up to $3,000 of excess losses if you are a taxpayer other than a corporation.

The net investment income tax on capital gains

Your capital gains may be subject to the 3.8% net investment income tax in addition to other income tax.

Collectibles and the 28 percent rate

If all of your net capital gain comes from selling collectibles, the capital gain rate would be 28 percent.

Basis

Cost basis explained

Your basis is your investment in property for tax purposes.

Adjustments to basis

You generally increase your property's basis for capital improvements and decrease it for depreciation, amortization, and depletion before figuring gain or loss.

Basis records and proving your basis

You must keep accurate records of all items that affect your basis, which you use to calculate gain or loss and other tax amounts.

Basis of property received as a gift

If you receive property by gift after December 31, 1920, your basis generally follows the basis it would have in the hands of the donor or the last preceding owner who did not acquire it by gift.

Basis of inherited property

Your basis in inherited property is generally its fair market value on the date of the decedent's death, subject to the exceptions and conditions in section 1014.

Selling inherited property

Your basis in inherited property generally equals its fair market value at the previous owner's death, subject to the exceptions in section 1014.

Selling a business or real estate

Section 1231 gains and losses

You report your net section 1231 loss as an ordinary loss in Part II of Form 4797.

Section 1245 recapture

When you dispose of section 1245 property at a gain, depreciation allowed or allowable is treated as ordinary income to the extent covered by the recapture rules.

Section 1250 and unrecaptured gain

When you sell section 1250 real property held more than one year, section 1250 recapture can treat gain attributable to depreciation exceeding straight line depreciation as ordinary income.

How installment sales work

You generally have an installment sale when you sell property and receive at least one payment after the tax year of sale.

Seller notes and interest in an installment sale

Your installment sale payments usually include interest, a return of your adjusted basis and gain, and you report the interest as ordinary income.

Like kind exchanges under Section 1031

You generally recognize no gain or loss when you exchange real property held for business or investment solely for real property of like kind that you will also hold for business or investment.

Related party 1031 exchanges

If you exchange property with a related person, an otherwise qualifying section 1031 exchange can lose nonrecognition treatment if either of you disposes of the relevant property before the date two years after the last transfer forming part of the exchange.

Selling your home

The home sale exclusion under Section 121

You may exclude up to $250,000 of gain when you meet the Section 121 requirements, including owning and using your home as your principal residence for at least 2 years during the 5 years ending on the sale date.

Ownership and use tests for a home sale

You generally must have owned your home for at least 2 years and lived in it as your main home for at least 2 years during the 5 years ending on your sale date.

Home sales after rental, office or nonqualified use

If you used your home for business or rental purposes, you cannot exclude gain equal to depreciation allowed or allowable for periods after May 6, 1997.

Stocks, funds, crypto and gifts

Selling stocks and mutual fund shares

If you can adequately identify the stock shares you sell, you use the cost or other basis of those particular shares.

Tax loss harvesting

With tax loss harvesting, you replace investments trading at a loss and use deductible capital losses within the applicable limits.

The wash sale rule

You cannot deduct a loss under section 165 on a sale or other disposition of stock or securities if you acquire substantially identical stock or securities by purchase or an exchange on which the entire gain or loss is recognized by law during the period beginning 30 days before the disposition and ending 30 days after it, unless you are a dealer in stock or securities and sustain the loss in a transaction in the ordinary course of that business.

How crypto and digital asset sales are taxed

Your convertible cryptocurrency is property for federal tax purposes, so general property tax principles apply to your transactions.

Digital asset broker reporting and Form 1099 DA

Your broker must report certain digital asset sales and exchanges beginning with transactions on or after January 1, 2025.

Donating appreciated stock and property

When you contribute property, section 170 requires reductions for specified amounts of gain that a sale at fair market value would have produced.

Reporting the sale

Form 1099 B and broker statements

If you sell stocks, bonds, or certain commodities through a broker, you should receive Form 1099 B or a substitute statement to use in completing Form 8949 and/or Schedule D.

Form 8949 and Schedule D

You must report taxable sales of stocks, bonds, commodities, and similar property on Form 8949 and/or Schedule D, as applicable, whether or not you receive Form 1099 B.