Individuals as well as corporations have to pay income tax for their assets based on the net total gained after a sale. It typically has to be paid at a preferential rate and is targeted to pump incentives for those who invest. Tax is based on the investors' tax bracket and the duration the assets were owned by the investor prior to the sale. Capital gains which are based on short-term are typically taxed based on the person's general income tax and treated as lesser than one year holding asset.
On the other hand, the long-term capital gains are the one which have been held more than a one year period. They are requested to pay a low rate for capital gains tax. The rate was minimized by 15 percent to five percent for individuals who are in the lowest income tax brackets. The aforementioned reduced-tax ratio was affected with a sunset provision and under operation across year 2010. Nevertheless, if they are not extended prior to 2010 it will expire and resume a new stage of earlier rates empowered before 2003 i.e., 20 percent.
It is good news to know that there are certain terms which qualify you to pay reduced tax whenever your assets are sold. Sometimes, you don't have to pay even a reduced tax if you are qualified for the privileges. For instance, when an individual has fulfilled the ownerships requirement, or has not utilized tax exemption for about two years before the sale had taken place, the tax can be reduced below the lowest level which is $250,000.
Amount of capital gains could be $500,000 if you are married and have filed a joint return. If the couple has met the requirements of house ownership requirement or one of them has not earned tax exemption for the last two years, they are eligible to receive tax exemption.
The ownership requirements of a house requires a person to live in a house as his own for five years before selling or owning the house for a minimum for two years. If a person can prove that he or she lived in a house or owns the house for four months or 730 days within a five year period, the tax exemption upon its sales can be gained. Exemption regulation for those who are in uniformed services or foreign services is different to that of normal persons. The need of staying in the house for two years is redundant whenever the service personnel have duties in some other locations.
Those who can have these specific tax exemptions are: Army personnel, commissioned servicemen in National Oceanic and atmospheric administration and public health servicemen. Foreign servicemen such as Ambassadors, Chief of Missions, Foreign Service officers, senior foreign services officers, and temporary Foreign Service personnel are also eligible to the capital gains tax exemption.