How to Figure Capital Gains Tax?

Below is how to figure capital gains tax according to the rules set forth by the IRS. First of all use the table below to figure out if you have capital gains or capital losses.

Below are terms you need to know before you learn how to figure out capital gains tax or capital losses.

Basis

The cost or purchase price of a property is usually the basis for calculating the capital gains and capital gains tax from the sale of the property. However, if you did not buy the property, then the basis is not the cost.

Adjusted basis

The adjusted cost basis or adjusted basis is the original cost or other basis plus additions to increase the value of the property less deductions such as depreciation and casualty losses.

Amount realized

The amount you realized from a disposition of a property is the total of all money you received for that property plus the fair market value of all property or services your receive including any liabilities assumed by the buyer such as in real estate transactions

Fair market value

The fair market value is the price at which the property would change hands between a buyer and a seller. The fair market value does not have to be the price which the property sells at.

Amount recognized

Your capital gain and loss realized from a disposition or sale of a property is usually a recognized capital gain or loss for tax purposes. Recognized capital gains are included in gross income whereas recognized capital losses are tax deductible and reduce gross income. Capital gains and capital losses realized from certain exchanges of property are not recognized.