What are capital gains?
Capital gains are the proceeds accrued from the sale of capital possessions which may include real estate, stock shares, and bonds among other capital assets. Capital gains tax is therefore defined as the tax applied to the profits that one makes out of the selling any of his estates or capital holdings.
The ongoing debate on whether to scrap of capital gains tax being clear evidence to the sentiments of investors towards this form of tax shows the amount of concern the business fraternity has towards this taxation. It may therefore make some difference if we would elaborate some of the circumstances that influence the calculation of your capital gains tax in order to help in working out your capital gains tax.
The calculation of capital gains.
As earlier stated in the definition, capital gains are made when one disposes of a capital asset at a price higher than he initially bought it for. This should however not be misconstrued to mean that every time an asset holder sales it of, he should pay some tax. In some instances, assets have been sold at even lower prices than they were actually purchased. At some points too, the selling price may stand slightly above the buying price but the seller may end up still not making any profit if the costs of commissions in addition to the buying price exceed the selling price.
Taking all these factors into consideration, the capital gains tax will only be determined basing on the following arithmetic. Take the selling price and deduct the following
* Any buying fees and commissions
* All the commissions and selling fees
* And lastly the purchasing price of the property or holding
Only once all that is worked out and the transaction is proved to have resulted in some profits for the asset owner can we start thinking of capital gains tax, is however not automatic that this will warrant tax payment. Other factors such as the amount of profit or the period for which the asset has been in the possession of the seller will determine whether he is liable to pay capital gains tax. The percentage of tax will depend on every individual's marginal federal tax rate
Who is exempted from capital gains tax?
Some assets are exempt from capital gains tax. This will include the ale of your primary home if the profits made do not exceed $250,000 for single persons and $500,000 for married couple who file joint tax returns. The periods for which an asset s held may also make it exempt from capital gains tax.