For U.S. federal tax purposes, when a taxpayer sells a capital asset, the difference between the seller’s adjusted basis in the capital asset and the gross proceeds from the sale are either capital gains or capital losses.
Capital assets include assets held for personal use or investment purposes. Personal use items may consist of a person’s vehicles, computers, clothes, household furniture, phone, and jewelry. Investment assets include stocks, bonds, and certain collectibles. Capital assets do not include inventory, real property, accounts receivable, or depreciable property used in a trade or business.1
Long Term or Short Term Capital Gains
Individual taxpayers report their capital gains or losses as short-term or long-term dispositions. Long-term dispositions include the sale or exchange of assets where the taxpayer held the asset for more than one year.2 Short-term dispositions apply to assets held for one year or less.3
Example Capital Gain on Investments
John bought $10,000 of stock in Company Bravo, a publicly traded company, on June 1, 2020. John sold the shares on December 1, 2022, for $13,000. John’s capital gain on the stock sale is $3,000 ($13,000 sales proceeds, minus $10,000 adjusted cost basis).
John’s holding period for the shares was over 2.5 years, so the gains are long-term capital gains (LTCG), and John reports the LTCG on Form 8949 (Sale and Dispositions of Capital Assets)
Example Capital Loss on Investments
Sarah bought $5,000 of stock in Company Delta, a publicly traded company, on October 1, 2023. Sarah sold the shares on December 1, 2023, for $4,000. Sarah’s capital loss on the stock sale is $1,000 ($4,000 sales proceeds, minus $5,000 adjusted cost basis).
Sarah’s holding period for the shares was only two months, so the losses are short-term capital losses (STCL), which Sarah reports on Form 8949. Sarah can generally use investment capital losses to offset other capital gains.
Example Capital Gain on Personal Asset
Brian bought a used TV from his friend for $100. Although the TV was worth more, his friend was moving apartments and needed to sell it as quickly as possible.
Brian used the TV for one month and then decided to sell it and purchase a larger TV. Brian lists the old TV for sale and manages to sell it for $150. Brian’s profit on the sale is $50 ($150 sale proceeds, minus $100 cost basis).
The TV is a personal use asset and a capital asset for tax purposes. Brian reports the gain on the TV sale on his Form 8949.
Reporting gains and losses from the sale of personal use assets can be complicated. For some video tutorials on how to report the sale of personal use assets, please view some of our video tutorials:
- TurboTax Form 1040 – Reporting Sale of Personal Use Item for a LOSS
- TurboTax Form 1040 – Reporting Sale of Personal Use Item for GAIN
Other Information on Capital Gains and Losses
Taxpayers can find more information on capital gains and losses by visiting the IRS website and reviewing IRS Publication 550 (Investment Income and Expenses).