Nearly everything you own and use for personal purposes (such as a home) or investment purposes (such as stocks or bonds) is a capital asset. When you sell a capital asset, the difference between the adjusted basis in the asset and the amount realized from the sale is considered a capital gain or capital loss.
If you sell the asset for more than the basis, you have a capital gain. You have a capital loss if you sell the asset for less than the basis. Losses from the sale of personal-use property, such as your home or car, are not tax deductible. Generally, an asset’s basis is the cost to the owner. However, there are other rules if the asset is received as a gift or inheritance.
Capital gains and losses are classified as short-term or long-term. If the asset has been held for more than one year before it is disposed, the capital gain or loss is considered long-term. Anything held for one year or less is considered short-term. Again, exceptions to this rule may be applicable if the asset was received as a gift or inheritance.
When calculating cost basis, you are responsible for reporting the basis in the sale of noncovered shares; the IRS is not sent this information. For covered shares, cost basis is reported to both you and the IRS.
Report most sales and calculate capital gain or loss on Form 8949, then summarize capital gains and deductible capital losses on Schedule D (Form 1040). The tax rate on most net capital gain is no higher than 15% for most individuals if taxable income is more than $40,400 for single or $80,800 for married filing jointly. If taxable income is less than that, capital gain may be taxed at 0%. A capital gain tax rate of 20% applies to the extent that taxable income exceeds $445,850 for single and $501,600 for married filing jointly.
If your capital losses exceed your capital gains, the amount of the excess loss that you can claim to lower your income is the lesser of $3,000 ($1,500 if married filing separately) or your total net loss. If your net capital loss is greater than this limit, you can carry the loss forward to future years.