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admin on Friday, January 18th, 2008 |
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Capital gains are those that arise out of the sales or transfer of capital assets. You can obtain capital gains by selling any type of property, which includes stock in trade, consumables, raw materials, personal effects, agricultural lands, gold bonds and special bearer bonds. There are certain properties that cannot be transferred for property gains. Tax rate is more in case of short-term capital gain than in long-term capital gain.
In the income tax return form Capital gains tax has to be mentioned in column 18. Capital gains are primary of two type’s long term and short-term. Short term assets are those on which the owner had an ownership for more than 36 months. Long term capital gains include that ownership of which extends this period. In short term gains two types of tax slabs are applicable one is the 10% and 30%. The form consists of four columns which contain the details related to all types of capital gains that have to be cleared in each quarter. You need to inform the government if you have given advance tax on capital gains or not. Those who have earned capital gains in the last quarter, you can mention it.
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admin on Sunday, November 11th, 2007 |
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The question on whether there are capital gains on inherited property has been asked quite often. The answer is a resounding yes! You are taxed when you liquidate inherited property. There is a specific process that you must follow in order to calculate your full tax liability. The first step you need to know is that you can actually get the exact tax liability amount free based on your information. Just follow the link to your left and submit your information and this company will calculate your full tax liability based on the information that you give them free of cost.
That being said we are going to show you exactly how to calculate capital gains on inherited property. The first thing that you are going to need is a great financial calculator, this to maker sure you don’t make any mathematical errors.
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First calculate your cost basis: This is tricky – The formula for this is
Valuation of the Property at Time of Death of Individual + Cost of Property Improvements + Cost of Sales (realtors commission, advertising etc.) = Cost Basis.
Once you have totaled this amount then you subtract it from the price that you sold the property for and you will have calculated your Capital Gains/Loss.
Normally the valuation used is as at the date of the bequest or’s death though rarely will the executor utilize an alternative date. Now that you have calculated your capital gains then you must now calculate how many taxes you are to pay. That should be done on the IRS form 1040 that basically outlines how much tax you are required to pay. However note that the most beneficial issue is that as it pertains to capital gains on inherited property is always treated as being held for a long-term even if you held the property for less than year. In effect what this means is that you will be taxed at the lower long-term capital gains rate of 15% of gains. And it is even better if based on your tax status your marginal tax rate is already 15% or less the capital gains on your inherited property will be taxed at a rate of 5%.
Schedule D Form 1040 – Capital Gains and Losses
Instructions to Complete Schedule D Form 1040
Watch These Capital Gains Videos
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admin on Monday, October 8th, 2007 |
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The key to understanding short term capital gains versus long tern capital gains is to first comprehend what is defined as the long versus the short term and hence both are taxed differently depending on what type your investment is considered to be. By legal definition the short term refers to any assets that have a holding (held in your possession) period is one year or less. These short-term capital gains are normally taxed at regular or ordinary income tax rates. On the other hand the long term holding period is defined as more than one year, even if it is just one year and a day. Longer term capital gains are not taxed at ordinary tax rates, instead the gains are discounted. Long term tax rates fall between 5% and 15%; this is determined by the individuals’ marginal tax bracket. The tricky side to this is how people view the holding period.
The holding period is based on the date of acquisition until the date of liquidation of the asset. Many investors attempt to extend the holding date to be charged at discounted rates. This proves a major problem too many short term investors as capital gains taxes will always prove a problem. Let us examine a very profitable practice of flipping properties. This is done quite easily; one purchases a property, repairs it and sells it for a marginal profit. Now if all calculations are not done properly then capital gains taxes can eat away at your profit margins. A truly common mistake. Let us assume Marge is a real estate flipper she buys a property and takes six months to rehabilitate it. A real estate agent takes two months to find a buyer and it takes another two months to complete the closing. If Marge made a profit upon sale that profit is considered capital gains for the short term and will be taxed at rates of almost 35% while if she kept the property for just 1 year and a day she would pay capital gains taxes at a rate of just 15%. This is a big chunk of anybody’s profits as this can severely affect bottom line earnings.
There is however a loophole but this is geared towards true investors who can cream several thousand of dollars from daily transactions in like kind. This uses the premise that the sale of an asset must be used to procure an asset of the same kind. So if you sold a car the profit must be used to purchase another car and so forth. A very nifty deal however this again is for major players and not those that exist on profits. If you can add your personal costs to construction costs then you will not have an issue in rolling over the revenue in short order deferring your capital gains taxes to a later date.
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