Short-term vs. long-term capital gain

Edwards Finance > Capital Gains

Q. I have long-term capital gains from stock transactions last year, along with a small short-term capital loss. Can I reduce the long-term gain by the amount of the short-term loss? I was under the impression that short-term and long-term gains are taxed differently. Yet I noticed TurboTax lumps both together, placing the net gain figure on the appropriate line on my 1040 form. Also, I thought that capital gains were taxed at a different rate than ordinary income. Again, though, TurboTax merely adds the gain to ordinary income to arrive at the adjusted gross income figure on Line 31 of the 1040 form. So it offers no way to calculate separate tax rates for capital gains and for income.

A. Take a look at Schedule D and ignore turbo tax for just a moment. You will see that you first figure all your short term gains and losses and get a net s-t gain or loss. Then you figure your long term gains and losses and get the net l-t gain or loss. Then you combine both s-t and long-term gains/losses to get am overall gain or loss. You enter that figure on line 13 of Schedule D. And, as you say, that adds to the AGI amount in line 31. Let's return to Schedule D. Line 18 says: If both lines 17 (Net long-term capital gain/loss) and 18 (net gain/loss) are gains, see the Capital Gain Tax Worksheet on page 24. It is this worksheet, which I assume turbo tax will calculate as well, which will calculate your tax so that the amount of taxable income (Form 1040, line 37) which is both net capital gain and also net long-term gain is taxed at not more than 28%. If, in fact, you will save money by reducing the tax on the amount of net gains which are net l-t gains to 28%, then go to Form 1040 line 38, where you state the tax, and you check box 38c, meaning the tax was calculated using the capital gains worksheet. >Also, I thought that capital gains were taxed at a different rate than >ordinary A more complicated but correct statement is if you have a combined long and short term gain AND if you have a long term gain then the part of overall gain that is long term is taxed at not more than 28%. Example 1: Long term Gain = $ 400 Short Term Gain= 200 400 wouuld be taxed at not more than 28% Example 2: Long term Gain = $ 400 Short Term Gain= (600) (a $600 loss) None of the long term gain receives favored tax treatment Example 3: Long term Gain = $ 400 Short Term Gain= (300) (a $300 loss) The total overall gain is 100, so $100 can receive favorable Capital gains tax treatment. >income. Again, though, TurboTax merely adds the gain to ordinary income >to arrive >at the adjusted gross income figure on Line 31 of the 1040 form. So it >offers >no way to calculate separate tax rates for capital gains and for income. Well, of course tax is not calculated on line 31, it is taxed on line 37. And the tax itself is computed on line 38. Look closely at line 38 and see the box labeled 38 c. 38c is labeled Capoital Gain Tax worksheet. If you didn't have turbo tax you would actually use a worksheet in your tax package to compute the tax, giving favorable capital gains treatment to the portion of overall gains which are longterm gains. I am sure turbo tax an dother tax packages are smart enough to do this as well. There was a time when this worksheet was part of Schedule D, but in recent years more and more items, including Earned Income Credit and Social Security taxable determination are in worksheets and not on the forms themselves.

Ask Edwards a Finance Question

Other Questions:

captial gains tax on short-term investment returns I'm a tax-law dummy. Can anyone help me understand how to mitigate the confiscator tax rate on my short term capital gains for 1999?

captial gains tax on short-term investment returns I'm a tax-law dummy. Can anyone help me understand how to mitigate the confiscator tax rate on my short term capital gains for 1999?-I have no idea what a confiscator tax is, but short term cap...

Could someone tell me or direct me to a page that lists the percentages for short term capital gains? I know you pay a higher amount, but what is it, and what length constitutes a "short term"?>Could someone tell me or direct me to a page that l...

I live in California and I'm using TurboTax 2004. I sold a bunch of stock this past year and paid a big chunk of estimated taxes to the IRS to pay off the capital gains tax associated with the transaction. Now I've entered everything into Turbo...

I've got a few questions that I've been puzzling over for some time now and I'd greatly appreciate any help or advice to them. Firstly, I've been reading up on capital gains tax. While I understand its principle, I don't understand the rate w...

We're renting our present home that we've lived in for 9 years starting April 1st. The rent covers the mortgage and the house will be paid off in 10 years. We live in Las Vegas where housing prices are climbing all the time. I've heard it's bes...

Edwards Finance Menu

Ask a Question
About Us / Me
Contact Me
Privacy Policy

Sitemap

My Favorite Sites

PFBlog
Google Finance
Yahoo Finance
Motley Fool
Nveille's Financial Blog
AllFinanceMatters
Free Money Finance
2MillionBlog
The Terror Finance blog

Q&A Subjects