Question

pick 1 of the five things you should know about capital gains tax, and give a pro or con point of view on the artical.

Paragraph Styles 6 5 Things You Should Know about Capital Gains Tax Updated for Tax Year 2019 OVERVIEW A capital gain occurs when you sell something for more than you spent to acquire it. This happens a lot with investments, but it also applies to personal property, such as a car. Every taxpayer should understand these basic facts about capital gains taxes. Capital gains aren't just for rich people Anyone who sells a capital asset should know that capital gains tax may apply. And as the internal Revenue Service points out, just about everything you own qualifies as a capital asset. That's the case whether you bought it as an investment, such as stocks or property, or for personal use, such as a car or a big-screen TV. If you sell something for more than your "basis" in the item, then the difference is a capital gain, and you'll need to report that gain on your taxes. Your basis is usually what you paid for the item. It includes not only the price of the item, but any other costs you had to pay to acquire it, including: . Sales taxes, excise taxes and other taxes and fees Shipping and handling costs Installation and setup charges In addition, money spent on Improvements that increase the value of the asset-such as a new addition to a building can be added to your basis. Depreciation of an asset can reduce your basis. In most cases, your home is exempt Draar

Answer 1

Capital Assets :-

Capital Gain Tax is a tax levied on the Gain of Capital Assets. The Define the Capital Assets. Section 1221 define "Capital Assets" as Property held by the Taxpayer whether or not it is connected with the taxpayers trade or business. However Property used in a Taxpayers trade or business and of a character that is subject to the allowance for depreciation provided in 167 is not a Capital asset Section 1221 (a) (2).The act gives a list of assets which were excluded from the term Capital Asset. For Example.

a) Stock In Trade, b) Property used in Trade or Business ,c )a taxpayer whose personl efforts created such property, d) a Patent,invention, model or design , a secret formula or process, copyright, a literary, musical or artistic composition, a letter or memorandum e) any commodities derivative financial instruments held by a commodity dealer.

To Levied the Tax (whether Short Term or Long Term) an Assets should be a Capital Assets. It must be within the definition. It should not exclude from the definition. Assets use for "Personal -Use-Property" (like Car ) aren't included in the definition of Capital Assets. Secondly such Capital Asset should be sold. If you just purchase it and hold it for a period (Whether for Short Period or Long Period) it won't attract Capital Gain Tax.

The classification of an assets (long term or short term ) is based on the period you hold that asset. If you hold the asset for less than 1 year then it is Short Term Capital Gain Tax else it is Long Term Capital Gain Tax. The more the period you hold it the more

According to this classification the rate of tax is also applicable i.e. 15% or 20% if the persons taxable income crosses the threshold limits. For example 15% tax levied on Net Capital Gain if taxable Income is $ 78750 or more but less than $434550 for singles; $ 488850 for married filling jointly or qualifying widow(er), $ 461700 for head of houshold or $ 244425 for married filling separately.

Hence it is very important to take into account the following points. It includes the Pros & Cons of a term " Capital Assets".

Determine the period of a Capital Asset before you levied the tax on it i.e. Short Term or Long Term. It will be a great help to determine "Buy-Hold" Strategy for an Investor. The Exception to this rule is for the property acquired by Way of Gift, Proerty acquired from Decendant, or Patended Property.

Whether the said capital asset is included in the definiation of Capital Assets or Definition itself excludes it.

Whether Single or Married Person who filled return Jointly or head of household or even widow(er) or married but filling separately should also note down the limit upto which no tax is levied or tax levived at less rate.

The Capital Gain Tax Applied to "Net Capital Gain Tax" (i.e. if you have gain from one transaction & loss from other transaction then the NET Result will be Taxed)

The Income from Business & Income from sale of Capital Assets are two different Transaction & hence its treatment also different. A Business income will not be taxed under Capital Gain & vice versa.

The word Income also include "Loss". You can claim the set-off of losses from sale of Long term or short term Capital Asset from Long Term Capital Gain.

Hence before Levied the tax under the heading " Capital Gain" above all points should be taken into account and then arrived on the calculation.