tax tips for tax year 2008
Capital Gains and Losses
Capital gains and losses are classified as either long–term or short–term depending on how long you held your capital asset. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is considered to be long-term. If you hold the asset for less than one year, your capital gain or loss is considered to be short-term. The distinction between long-term and short-term capital gains and losses is important in determining your taxation.
If you have a net capital gain, that gain may be taxed at a lower tax rate. The term "net capital gain" means the amount by which your net long–term capital gain for the year is more than your net short–term capital loss. For 2008, the 5% tax rate on qualified dividends and net capital gain is reduced to zero. The maximum capital gain rates are 0%, 15%, 25%, or 28%. If you have a taxable capital gain, you may be required to make estimated tax payments on Form 1040-ES.
If your capital losses exceed your capital gains, the amount of the excess loss that can be claimed is limited to $3,000, or $1,500 if you are married filing separately. If your net capital loss is more than this limit, you can carry the loss forward to later years by using the Capital Loss Carryover Worksheet in Publication 550.
Capital gains and losses are reported on Schedule D of Form 1040 and then transferred to Form 1040.
Deemed Sales by Expatriates. If you give up your U.S. citizenship after June 16, 2008, you may be treated as having sold all your property for its fair market value on the day before you gave up your citizenship. This also applies to long-term U.S. residents who cease to be lawful permanent residents. For details, exceptions, and rules for reporting these deemed sales, see Publication 519 and Form 8854.