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Gains…Of The Capital Kind

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When it comes to investing and real estate, an understanding of Capital Gains is necessary if you want to get the most you can out of your investments.  Capital Gains occur when your investment in capital assets like the Stock Market or real estate increase in value over the original purchase price.  This rise in value is what is referred to as Capital Gains and needs to be understood if you want to maximize the amount of money you keep from this increase in value.  Of course, you can’t realize these gains until you actually sell the asset.  But once you do, taxes need to be paid.  And if you want to keep as much of your gains as possible, you need to understand two types of Capital Gains.

Short-Term Capital Gains

Short-term Capital Gains refer to any assets that have been purchased and sold in one year or less time.  Any financial value gained on the asset is subject to income taxes.  They are taxed as ordinary income based on your filing status and adjusted gross income.  So, if you typically pay a 22% tax rate, you’ll be paying 22% of your gains in taxes on short-term gains.

Long-Term Capital Gains

Long-term Capital Gains refer to any assets that have been purchased and kept more than one year.  Yes, you need to pay income taxes on these gains as well, but the rate at which you’re taxed is typically a lot less.  The highest long-term Capital Gains tax rate is 20% for people who sit in the highest tax bracket.  Most people will pay about 15% tax on these gains while people earning $38,600 a year or $77,200 a year filing jointly, pay a 0% tax rate on Capital Gains.

The Takeaway

Capital Gains is the money gained from investments in capital assets like stocks, bonds, and real estate.  Money gained from Capital Gains is considered income and is taxable.  You pay a different tax rate depending on whether you experience short-term (one year or less) or long-term (more than a year) gains from capital assets.  You will pay a higher tax rate on short-term versus long-term gains.

Personally, I don’t buy any assets for short-term gains.  I don’t like paying the high tax rate and want to get the most out of my investment.  However, I do appreciate people who play the game of buying and selling investments for those short-term gains.  I’m just not one of those guys.

*** Also note that I’m NOT a financial advisor.  All information here is based on my experience and for entertainment purposes only.   I hope that this entertains you enough to seek a financial advisor for some sound financial advice.  I just hope to get you thinking!!!

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