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Learn Which Types of Assets are Eligible for Capital Gains Tax

In the world of finances, many people in the United States may be quite savvy and still not have a very solid grasp of how the federal tax system works. While most may be able to get by with the bare minimum of knowledge about income taxes, if you are a taxpayer who holds investments then you could definitely benefit from understanding how capital gains tax works. It is essential to understand the basics of this type of tax in order to make more informed decisions about your investments and avoid any trouble with the Internal Revenue Service. Fortunately, the basics are not very complicated to grasp. At its heart, a capital gains tax is simply a tax that is levied against profits earned on investments. The key word here is profits. If you experience losses from your investments, this is handled a different way, but when you profit from most investments you will need to pay the appropriate tax associated with that investment. For our purposes, we will focus on the assets other than stocks, bonds and mutual funds that are eligible to be taxed as capital gains. There is a common misconception that this form of tax applies only to those who invest in the stock market or own real estate, but that is not the case. As a matter of fact, there is a wide array of investments that are eligible to be taxed when they are sold for a profit. Many people do not realize that collectibles such as fine art, antiques and coins are considered eligible for capital gains tax when they are sold, but this is certainly the case. Alcoholic beverages such as fine wines and spirits, rugs of a rare nature, coins, precious gems and metals, and stamps - these are all collectibles that are considered to be investments. If you sell them for a profit, then the income from that sale will be subject to taxation. If you have owned the collectibles for a more than a year before selling you will pay a flat 28% tax rate, but if you owned them less than a year then you will pay a short term rate that is the same as your ordinary income tax rate. While business assets such as office furniture, computer systems and copy machines are taxed as ordinary gains, you do need to report them using IRS Form 4797. Real estate and small business stock are both considered subject to capital gains tax, as well, but those taxes are figured in a much more complex way that you are advised to seek professional assistance with.