![]() ![]() Usually, the first-in-first-out rule applies (i.e., stock you purchased first is considered sold before stock you purchased later). If you sell some but not all the stock you hold in a company, and you acquired stock on different dates, there are several ways to determine your basis. Sometimes this is a matter of substantiating your basis, which requires good recordkeeping. Tax Tip : Since your basis is subtracted from the amount you receive when disposing of a capital asset, you want the highest basis possible so that the taxable portion of your profit is as low as possible. But in other situations, determining your basis can be more complicated. Sometimes this is an easy calculation – if you paid $10 for stock and sold it for $100, your capital gain is $90. Your basis is generally what you paid for the asset. Your taxable capital gain is generally equal to the value that you receive when you sell or exchange a capital asset minus your "basis" in the asset. With a QOZ, you have 180 days to take action to defer your capital gains. On the other hand, the "qualified opportunity zone" program, which allows you to defer capital gains by making a qualifying investment in designated economically distressed communities, generally has more generous timing rules. So, unless you disposed of property very close to the end of 2022, you likely will be too late to defer your gains using a like-kind exchange. For instance, you generally need to identify replacement property within 45 days. Special rules apply to certain "like-kind" exchanges of real estate. Accordingly, when preparing your 2022 tax return, you should consider whether you were party to any nonstandard transactions of this type in 2022. A capital gain (or loss) is also realized when property is exchanged for other property. Other types of events besides sales can also give rise to a "realization." For instance, property that is involuntarily converted or taken by the government, or over which you grant an exclusive use right to others, may be treated as sold. For this reason, many real estate investors will refinance properties rather than sell them. For example, loans against your capital asset don't give rise to a realization event or capital gains tax. As a result, capital assets can continue to appreciate (increase in value) without becoming subject to tax as long as you continue to hold on to them. When Are Capital Gains Taxed?Ĭapital gains are taxed in the taxable year in which they are "realized." Your capital gain (or loss) is generally realized for tax purposes when you sell a capital asset. So, for all practical purposes, this type of business property is treated as if it was a capital asset. Plus, although real or depreciable property used in a trade or business is not a capital asset, gains from the sale or involuntary conversion of them may nonetheless be treated as capital gains if they were held for more than one year. In addition, intellectual property (e.g., a patent invention model or design secret formula or process copyright literary, musical, or artistic composition letter or memorandum, etc.) is not considered a capital asset if it's held by the person who created it or, in the case of a letter, memorandum or similar property, the person for whom it was prepared or produced.
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