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| Americans - Capital Gains and Losses Almost everything you own and use for personal purposes, pleasure or investment is a capital asset. When you sell a capital asset, such as stocks, the difference between the amount you sell it for and your basis, which is usually what you paid for it, is a capital gain or a capital loss. While you must report all capital gains, you may deduct only your capital losses on investment property, not personal property. A “paper loss” — a drop in an investment’s value below its purchase price — does not qualify for the deduction. The loss must be realized through the capital asset’s sale or exchange. Capital gains and losses are classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. If your capital losses exceed your capital gains, the excess is subtracted from other income on your tax return, up to an annual limit of $3,000 ($1,500 if you are married filing separately). For 2005, the maximum capital gains rates are 5 percent, 15 percent, 25 percent or 28 percent.
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