Capital gains taxes come up often when Long Island homeowners sell investments, a second property, or even shares they have held for years. The rules can sound complicated, but the basic ideas are fairly simple once you break them down. Here is a plain language look at how long term gains and losses generally work, along with a reminder that the specific numbers change over time.
What Counts as a Long Term Capital Gain
When you sell an investment or other capital asset for more than you paid for it, the profit is called a capital gain. If you held the asset for longer than a year before selling, it is generally treated as a long term gain, which historically has received more favorable tax treatment than short term gains or ordinary income.
Congress has adjusted these rates several times over the years, and provisions affecting them have included built in expiration dates in the past. That means the rate that applies to a gain today may not be the same rate that applies a few years from now. Because of this, it is worth checking current figures before you make assumptions about what you will owe.
Special Categories Within Capital Gains
Not all long term gains are treated exactly the same. Certain categories, such as gains tied to depreciation recapture on real estate, gains from collectibles, or gains from certain small business stock, have historically been taxed at different rates than typical long term gains.
If your sale involves real estate, collectibles, or specialized business stock, it is a good idea to ask a tax professional whether any special rate might apply to your situation.
How Capital Losses Work
Investments do not always go up in value, and losses are a normal part of investing. When you sell an asset for less than you paid, you have a capital loss. The general approach is that losses can first be used to offset gains from other asset sales in the same year.
If your losses are larger than your gains, you may be able to deduct a portion of the remaining loss against other income, such as wages, in that tax year. There is a yearly limit on how much of this excess loss can be deducted, and the limit differs depending on your filing status. Amounts beyond that limit are generally not lost, but can often be carried forward and used in future tax years.
Because deduction limits and carryforward rules can change, and because everyone's financial picture is different, it makes sense to review your specific numbers with a tax advisor rather than relying on older figures you may have seen elsewhere.
This article is general information only, not tax, legal, or financial advice, and tax rules change over time, so individual situations can vary. If you have questions about how a sale of property, investments, or other assets might affect your taxes, consider speaking with a qualified tax advisor or accountant. And if those same assets, like your home, vehicles, or business, need an insurance review, the team at Flynn Insurance Agency in Kings Park is glad to sit down and talk through your coverage options.
This article is general information, not legal, tax or financial advice. Coverage depends on the terms, conditions and exclusions of each policy. Talk with a licensed agent about your situation.
