A capital gain or loss is a gain or loss on the sale of almost any asset. Gains and losses which do not relate to the sale of business property are first reported by the taxpayer on Form 8949, Sales and Other Dispositions of Capital Assets. Each of these capital gain and loss transactions is listed on Form 8949; the subtotals are then carried over to Schedule D (Form 1040), Capital Gains and Losses, where gain or loss will be calculated as a whole. Many transactions that, prior to 2011, would have been reported on Schedule D (Form 1040), must be reported on Form 8949 if they occurred after 2010.
If the gain or loss relates to the sale of business property, it is first reported on Form 4797, Sales of Business Property. The figures from Form 4797 are carried over to Schedule D. The sale of a personal residence is reported only if there is a gain in excess of the excludable amount (covered later in this chapter). The gain would be reported on Form 8949 and Schedule D.
The rate at which the gain on the sale of a capital asset will be taxed depends on the type of capital asset, the holding period, and the taxpayer's tax bracket. If a taxpayer has a capital loss, the loss will be netted with any realized gain. If the taxpayer has a net loss in excess of $3,000, he would be able to deduct up to $3,000 of his loss against his ordinary income in the year of the sale. Any unused capital loss would then be carried forward to subsequent years and used to help offset any capital gains for that year. The net loss again will be limited to $3,000 each year until the loss is depleted. If Married Filing Separately, the limit is $1,500. Net long-term capital gains are generally taxed at a lower rate than the tax rates that apply to other income. Net short-term capital gains are taxed as ordinary income.