QandAs: Legal

What is a Capital Gain?

Answer:
A capital gain is the value of the difference

between what an asset is worth today over what it was worth when it as purchased. These are generally assets like stocks, bonds and real estate. The way it works is like this: if you bought your home for $100,000 five years ago and sell it today for $150,000, you have received a capital gain of $50,000.

On the same note, if that same house is only worth $75,000 today, you would be facing a capital loss of $25,000. The value of a capital gain becomes important when you look at the tax ramifications.

Generally, capital gains are subject to tax at 15% plus your State tax. However if own the asset less than a year, the IRS treats the capital gain as ordinary income and it can be taxed as high as 39%. The IRS does cut you a break, however with the sale of your primary residence. For the single taxpayer, you get to claim a capital gain exemption of $250,000 on the sale of your home. For married taxpayers the exemption jumps to $500,000.


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