Capital Gains Tax

Capital gains tax refers to the tax implemented on the profits earned from the sale of the investments or sale of the estate. In a way, it can be said that the capital gains tax is the tax charged on the capital gains, earned from the sale of the assets.

The tax levied on the profits earned from the sale of capital assets is termed as capital gains tax and the assets in this case may be real estate, stocks, bonds, precious metals, mutual fund shares, futures and options. The inheritance of real estate may also come under the laws of capital gains taxation. The rate of capital gains tax may vary with the type of the capital gain. In case of the short term capital gain, the individual is taxed at the normal tax rate while in case of the long term gain; the individual may be taxed at 15% rate. If the individual falls in the tax bracket of 14% or less, the rate of capital gain tax will be 5%. The properties or assets that are owned for less than one year are considered to be short term capitals while the properties owned for more than 1 year are considered as the long term capitals.

The capital gains tax for the real estate can be completely avoided if the house that an owner is planning to sell is considered as his principal residence and that is possible only if the number of days stayed in that house comes out to be two years in total in the last five years by the homeowner. After the government declaration of the property as the principal residence, the owner can sell the house without paying any capital gains tax.

In case of the rental property also the owner can convert his property into principal residence by staying at least two years in that rental property. The home property does not require being a principal residence at the time of sale and hence the property owner can rent out the property just a few months before home property sale and can thus avoid capital gains tax. In case of the married homeowners, if the bride sells her home to live with the groom and if she used the capital gains exclusion, the bride and groom can avail the Capital Gains Exclusion after two years.

For more information on capital gains tax, please click on the following links:

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