Gains from investments include interest, dividends, stock sales and the proceeds from real estate and business investments. Almost everything you own and use for personal or investment purposes is a capital asset, according to the Internal Revenue Service, and is subject to capital gains taxes. As of publicatikon, the net capital gains tax rate is 15 percent for most people. Capital gains and losses are reported on Schedule D before being summarized on Line 13 of Form 1040. Report income from interest and dividends using Form 1099-INT or Form 1099-DIV.
An investment's basis is the difference between the price you paid for an investment -- such as a house, bond or share of stock -- and the price for which you sell it. If you sell an investment at a positive basis, it is a capital gain; for example, buying 100 shares of stock at $15 each, then selling them at $16 results in a positive basis of $100 and would be reported as a capital gain on Schedule D. Investments sold with a negative basis are capital losses.
Schedule D classifies capital gains and deductible capital losses as either long term or short term. If you hold an asset for one year or longer, it is long term; holding an asset for less than one year classifies it as short term. Start your count of the asset's holding period on the day after you acquire it and include the day on which you sell it. If your capital gains and losses on Schedule D reflect a net capital gain, you will pay a capital gains tax. A net capital gain or loss is the difference between your long-term capital gains and any losses.
Proceeds from the sale or trade of stock, bonds and certain commodities are reported on Form 1099-B or an equivalent statement, according to the IRS. The form includes information such as the basis, the sale price and the resulting capital gain or loss. If your capital gains are automatically invested for you, the reinvested amount is the basis for the subsequent investment, according to the IRS. The information reported to you on Form 1099-B must be listed on Schedule D of Form 1040.
Interest and Dividend Income
Interest payments from banks and credit unions and interest paid to you on personal loans are summarized on Form 1099-INT. Interest earned by distributive shares of partnerships or S corporations is reported to you on Schedule K-1 before being transferred to Schedule D. Taxes for interest income vary based on the source of the interest. Dividend income comprises the distribution of cash, shares of stock or property from mutual funds or corporations, but it can also come from an estate or certain bank deposits. Ordinary dividends are taxed at your usual income tax rate, but qualified dividends -- which meet holding period and issuance requirements -- are taxed as net capital gains. Before being reported on Schedule D, dividend income is reported on Form 1099-DIV.
- Internal Revenue Service; Ten Important Facts About Capital Gains and Losses; February 2011
- Internal Revenue Service: Reporting Capital Gains
- Internal Revenue Service: Topic 409, Capital Gains and Losses; March 01, 2011
- Internal Revenue Service: Publication 550 (2010), Investment Income and Expenses
Ben Taylor has been writing since 2005 and has had work published by WEKU-FM and West Virginia Public Broadcasting both on air and online. Taylor holds a Master of Arts in English from Eastern Kentucky University and currently teaches composition and ESL there.