Our federal income tax law did not have special treatment for capital gains until a much lower rate (12.5% rather than a top rate of 73%) was added by the Revenue Act of 1921 (P.L. 67-87; 11/23/1921).
So, November 23 marks 100 years of complexity, lots of discussion on why and how there should be any preference for capital gains, and fairly constant changes to these rules.
The Revenue Act of 1921 defined capital asset as “property acquired and held by the taxpayer for profit or investment for more than two years (whether or not connected with his trade or business), but does not include property held for the personal use or consumption of the taxpayer or his family, or stock in trade of the taxpayer or other property of a kind which would properly be included in the inventory of the taxpayer if on hand at the close of the taxable year.”
The 1921 Act also
Apps like Robinhood make it easy for everyone to play the stock market. If you’re a retail investor who made money last year buying and selling stocks, you may owe capital gains tax when you file your tax return this year. If you lost money, you may be able to deduct that loss and reduce your income.
Here’s what you need to know about capital gains tax:
Capital Gains And Losses Defined
A capital gain or loss is the difference between your basis – the amount you paid for the asset – and the amount you receive when you sell an asset. All capital gains (or losses) must be reported on your tax return.
Losses Limited To $3,000
The GameStop stock saga will undoubtedly go down in history as one of the most mystifying market events Wall Street has ever seen. Indeed, the markets have seen a massive influx of new retail investors into the space. But many of these investors have not previously participated in the market. As noted by CNBC:
There were 3.7 million downloads of Robinhood in January, according to app market intelligence firm SensorTower, even with the millennial-favored stock trading app’s unpopular decision to put trading restrictions on a handful of stocks during GameStop’s climb. After the GameStop drama in February, downloads are still tracking strongly with 1.8 million month-to-date.
The capital gains income of: nonresident alien students, scholars, and employees of foreign governments and international organizations may be taxed in a different way than the capital gains income of other nonresident aliens.
The following discussion assumes that the capital gains in question are not effectively connected with the conduct of a trade or business in the United States.
Most foreign students, foreign scholars, and alien employees of foreign governments and of international organizations in the United States are considered to be “exempt individuals.” That is, they are exempt for extended periods of time from counting days of presence in the United States for the purposes of determining whether they are resident aliens of the United States.
Thus, most foreign students, foreign scholars, and the alien employees of foreign governments and of international organizations in the United States remain nonresident aliens in the United States for extended periods of time.
A flat tax of 30 percent was imposed on U.S. source capital gains in the hands of nonresident alien individuals physically present in the United States for 183 days or more during the taxable year. This 183-day rule bears no relation to the 183-day rule under the substantial presence test of IRC section 7701(b)(3).
Whatever the location, size, or value of a second home, certain tax advantages are built in. However, your opportunity to benefit from them depends on how you use the property.
Both property taxes and mortgage interest are as deductible for a second home as they are for your primary residence — and are subject to the same limitations. If you file a joint return, you cannot deduct interest on more than $1 million of acquisition debt ($500,000 for married persons filing separately) on one or two homes. Read More
Enterprise Investment Scheme and Seed Enterprise Investment Scheme relief are being considered by a large number of companies at the moment as a way of raising funds but at the same time enabling investors to obtain attractive income tax and capital gains tax reliefs.
A number of cases have been heard before the First tier and Upper Tribunals that demonstrate how easy it is to fall foul of the complex provisions granting these reliefs. Moreover, there have been a number of changes to the legislation in recent years, and more changes have been announced that will have a significant impact on the operation of the relief.
Risk To Capital Condition Read More
For a unique group of foreign individuals (i.e., non-US citizens referred to in the tax world as “aliens”), living in the U.S. does not trigger “resident” status for tax purposes. These so-called “exempt” individuals include foreign students, foreign scholars, and alien employees of foreign governments and of international organizations in the United States. U.S. tax law considers this lucky bunch to be exempt from counting days of presence in the United States for the purposes of determining whether they are resident aliens of the United States. Read More
Revisions to Section 55 of the Income Tax Act (“ITA”) may prevent the tax-free payment of inter-corporate dividends within a related corporate group.
With the exception of Part IV tax where applicable, the related party exemption per S55(3)(a) will no longer be available to allow cash dividends say paid from Opco to Holdco unless there is safe income in the payor corporation at the time of the dividend payment.
This article discusses debt securities issued by the federal government—treasury securities and savings bonds and non-taxable bonds issued by states and municipalities.
U.S. Treasury Bonds and Notes
Non-inflation adjusted securities. Read More
This article will discuss the meaning of bond quotation prices on the exchange, determining initial basis, amortization of premium and discount, determining the adjusted basis, and the gain or loss on the sale before maturity. It will also discuss convertible, callable, and zero coupon bonds.
This is the final part of a three part series which examines sales of gifts, non-business bad debts, and securities. In the first part, we discussed the general aspects of capital gains and losses, the brokers reporting to investors, how and where they are reported on Form 1040 and supporting schedules. The previous part discussed the tax implications for wash sales stock rights, small business stock, and inheritances.