What is capital gains tax and how does it work?

What is capital gains tax and how does it work?

Capital gains tax is a tax on the profit from the sale of an asset. It applies to investments like stocks and real estate.

Are there different rates for short-term and long-term capital gains?

Yes, short-term capital gains are taxed as ordinary income, while long-term gains are usually taxed at a lower rate.

What are some strategies to minimize capital gains tax?

Some strategies include holding investments for over a year, using tax-loss harvesting, and investing in tax-advantaged accounts.

How do I report capital gains on my tax return?

You report capital gains on Schedule D of your tax return, detailing each transaction and the gains or losses.

Are there any exemptions for capital gains tax?

Yes, there are exemptions, such as the primary residence exclusion, which allows you to exclude gains from the sale of your home under certain conditions.