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Video: What Is the Capital Gains Tax?

Updated for Tax Year 2021 • January 21, 2022 05:05 PM


OVERVIEW

The capital gains tax applies when a person sells a capital asset. Find out about the capital gains tax with help from TurboTax in this video clip.


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Video transcript:

Hello, I'm Jeremy with TurboTax with some important information on capital gains tax.

I'm sure you've heard about the capital gains tax but do you know exactly when it applies? Let me clear this up for you.

First of all, the tax only applies when you sell a capital asset.

  • A capital asset is essentially any person property you own.
  • The list of capital assets is endless but commonly it refers to your home, car, stocks and even your furniture.

Sometimes when you sell this type of property you will make a profit and it's this profit that's subject to the capital gains tax. But the good news is that if you owned the property for more than one year the tax rates are lower.

Calculating your profit is pretty straightforward.

  • For example, if you purchase a stock for $5 a share and then you sell it for $8, your profit is equal to $3 per share which is subject to the capital gains tax.
  • And as I mentioned earlier, selling the stock in the first year after you bought it will subject you to a higher tax rate than if you hold it for more than a year.

When you file your tax return, the IRS requires you to report any capital assets you sell during the year. If you have any, fill out a Schedule D and submit it with your tax return. TurboTax can guide you through this including calculating your gains and determining which tax rates apply.

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