BY BRITTANY RAZZANO, ESQ.

What is a capital gain? Generally, a capital
gain results from a sale of an asset, such as a
stock, at a higher price than the owner originally
paid. What the owner paid for the asset
is known as the cost basis. If the sale price
is higher than the cost basis, the difference
between the two is a capital gain.

A long-term capital gain is a gain resulting
from a holding period of more than one year.
For most taxpayers, a long-term capital gain
is taxed at 15 percent (20 percent for the top
tax bracket). A short-term capital gain is a
gain resulting from a holding period of 12
months or less. A short-term capital gain is
taxed as ordinary income, which varies depending
on the taxpayer’s income tax bracket.

Beyond the basics of capital gains tax rules,
we must consider the effects of gifting and
inheriting capital assets. When considering
these events, we must also think about the
possible gift tax and estate tax ramifications.
The current federal annual gift tax exclusion
amount is $14,000 per person.

This means that a donor can give each
person $14,000 per year without having to
pay or report any gift taxes. If the donor is
married, they can give away $28,000 per year
per person. It is important to note that while
for tax purposes, a gift of $14,000 or less is
disregarded, such a gift may be considered a
transfer that could trigger a penalty period
for a Medicaid look-back period, if the donor
has to go into a nursing home within five years
of making the gift.