John M. Hoffman & Associates CPAs

Frequently Asked Questions

Capital Gains and Losses

How are my capital gains and losses taxed?

This is not as simple of a question as you might think.

First you net all long term gains and losses (including carryovers). This is your long term gain or loss.

Second you net all short term gains and losses (including carryovers). This is your short term gain or loss.

If you have gains or losses in both categories then you have both (both short term and long term gains or losses). If you have gains in one category and losses in the other, you net the two. Whichever is left after the netting is what you have. For example $10,000 of short term losses and $25,000 of long term gains, nets out to $15,000 of long term gains.

If you are left with capital losses, you can use $3,000 per year to offset your ordinary income and carry the balance forward indefinitely.

If you are left with capital gains, the short term gains are taxed as ordinary income but the long term gains are (currently) taxed at a special rate. That special rate is 15% for capital gain income that would have otherwise been taxed at rates of  25% or higher and 5% for income otherwise taxed at lower tax brackets.