How to File Taxes for Capital Gains

A taxpayer realizes a capital gain when he sells a capital asset, such as stocks, bonds, real estate or other property, at a profit. The sale is usually reported on Schedule D of the tax return, but the treatment of the gain for tax purposes depends on the kind of property it is and how long the taxpayer has owned it, called "the holding period." The federal tax rate on capital gains can range from zero percent to as high as 35 percent. Here's how to determine how to file taxes for capital gains.

Instructions

1. Determine the holding period for capital gains. If you've owned the asset for less than a year before it's sold, it's called a short-term capital gain. Short-term capital gains are taxed at the same rate as any other ordinary income, such as your wages. There is generally no tax break for short-term gains.

2. Hold the asset for more than a year before selling it (making it a long-term capital gain) and you could get some significant tax savings. A taxpayer in the 10 or 15 percent tax brackets currently pays no tax on long-term capital gains. Taxpayers in higher tax brackets pay 15% tax on long-term capital gains, even if they are in a much higher tax bracket.

3. Understand that some gains on capital assets are taxed differently. If you sell your stamp or coin collection, your Civil War memorabilia or any other asset classified as a "collectible," the tax rate is 28 percent. If you sell real estate on which you have taken deductions for depreciation, the recapture of that depreciation amount is also taxed at a different rate, depending on the holding period and the original purchase date. Consult your tax adviser for your specific situation.