Capital gains and losses occur when you sell or exchange a capital asset for more or less than its purchase price. Common capital assets include stocks, bonds, mutual funds, cryptocurrency, investment property, and even your primary residence in certain situations.
When you sell a capital asset, the difference between your adjusted basis (generally what you paid for the asset, plus certain adjustments) and the selling price determines whether you have a gain or a loss.
Most capital asset sales are reported to you on:
- Form 1099-B, Proceeds From Broker and Barter Exchange Transactions
- Form 1099-S, Proceeds From Real Estate Transactions
These forms provide information you'll use to report the sale on your federal tax return.
What Is the Difference Between a Capital Gain and a Capital Loss?
- A capital gain occurs when you sell an asset for more than your adjusted basis.
- A capital loss occurs when you sell an asset for less than your adjusted basis.
For example, if you purchased stock for $1,000 and later sold it for $1,500, you would generally have a $500 capital gain. If you sold it for $800 instead, you would generally have a $200 capital loss.
What Is the Difference Between Short-Term and Long-Term Capital Gains?
Capital gains and losses are classified based on how long you owned the asset before selling it.
Short-Term Capital Gains and Losses
Assets held for one year or less before being sold are considered short-term.
Short-term gains are generally taxed at the same rates as ordinary income.
Long-Term Capital Gains and Losses
Assets held for more than one year before being sold are considered long-term.
Long-term capital gains may qualify for preferential tax rates, which are often lower than ordinary income tax rates.
Because the holding period can affect how much tax you owe, it's important to enter the correct acquisition and sale dates when reporting investment transactions.
How Do I Report Capital Gains and Losses in TaxSlayer?
To enter the sale of stocks, mutual funds, cryptocurrency, collectibles, and similar investments in TaxSlayer:
- Select Federal.
- Select Income and choose My Forms.
- Select Investments.
- Choose Stocks, Mutual Funds, Cryptocurrency, Collectibles, etc.
Follow the prompts to enter the details from your Form 1099-B or other supporting documents.
Before You File
Review your transaction details carefully to ensure:
- Purchase and sale dates are correct.
- Cost basis information is accurate.
- Gains and losses are classified correctly as short-term or long-term.
- Information entered into your return matches your Forms 1099-B or 1099-S.
Accurately reporting capital gains and losses helps ensure your tax return is complete and can prevent delays or IRS notices after filing.