Capital gain tax

Capital gain tax is the tax levied on the profits earned from the sale of any non inventory that was purchased at lower price.

What are capital assets?
Any non inventory assets are called capital assets and include stocks, bonds, mutual funds, jewelry or any other property of similar nature. This means every asset you own is a capital asset.

What is capital gain?
Any gain or profit earned due to the sale of capital asset is treated as income and this income is considered under taxable income. Capital gain is classified into two types under the tax code- short term capital gains and long term capital gains. If you purchase any property and sell it within a year then the profits you earn come under short term capital gain. But if there is a gap of more than one year between the purchase of the asset and sale of the asset then the profit you make come under long term capital gain.

There are different tax rules for both the form of capital gain. If you come under 10%-15% of income tax range and you have purchased and sold your property within a gap of one year or more then you are liable to pay 5% on long term capital gain as tax. But if you come under the tax range of above 15% then you will pay 15% tax on capital gain.

How you calculate your capital gain?
You subtract the purchase amount of your asset from the sale amount of your asset. The figure that you receive by this calculation if positive indicates the capital gain or profit that you make. Next you fill this profit amount on the schedule D of IRS.
From 2005 onwards the capital gain tax range from 5%- 28%. But if you have incurred some losses then you can claim for deduction that is up to $3000 per year. If you have loss of more than $3000 then you can claim only $3000 in one financial year and carry forward the remaining loss to the next financial year.

If you have purchased an asset and also sold it within a year then you are liable for short term capital gain tax. Short term capital gains are taxed at normal tax rates. Therefore the amount you pay as taxes for your capital gain depend upon the time for which you hold your asset with you. Holding period starts with the second day after the trade date of the asset and is not calculated from the settlement date.

There are different ways by which you can save the capital gain tax and donating to charity is one of them.