Computation of Capital Gains A capital gain is the difference between the cost price and the fair market value of an asset at the time of its sal...
A capital gain is the difference between the cost price and the fair market value of an asset at the time of its sale. When you buy an asset for a lower price and sell it for a higher price, you make a capital gain.
Here's how to calculate a capital gain:
Cost price: This is the price you paid for the asset when you bought it.
Fair market value: This is the price that a willing buyer would pay for the asset in a fair and competitive market, taking into consideration its condition, comparables, and other relevant factors.
Capital gain = Fair market value - Cost price.
Examples:
If you buy a car for 12,000, you make a capital gain of $2,000.
If you buy a piece of land for 60,000, you make a capital gain of $10,000.
If you buy a stock for 120, you make a capital gain of $20.
Important points to remember about capital gains:
Capital gains are not taxed when you buy them.
They are capitalized and added to your taxable income when you sell them.
Capital gains are treated differently from income from other sources in terms of taxation.
Capital gains tax rates:
The capital gains tax rates vary depending on the type of asset sold.
Generally, long-term capital gains are taxed at a lower rate than short-term capital gains.
Capital gains earned by individuals over the age of 59½ are generally exempt from federal income tax