• Form 1040 tax returntax forms image by Chad McDermott from Fotolia.com
  
  Capital gains tax is levied on the appreciation realized on any capital asset. The Internal Revenue Service has several rules and regulations that govern the application of this tax. The IRS has also published vast amounts of information regarding capital gains and capital losses--information is fairly easy to navigate when using the appropriate tax advisers such as accountants and tax attorneys.
  
  

• Most of your possessions are are capital assets. Selling a capital asset can trigger an event that will create a capital gain or loss depending on whether you sold the property for more or less than you paid to acquire it. In the event of a capital gain, you must report it to the IRS. Capital losses can lead to a deduction opportunity but only on property that was used for investment or business purposes. Personal property does not qualify.
  
  

• Short-term gains or losses are considered on those assets that have been held for one year or less. Conversely, long-term gains or losses can be incurred on property that has been held for one year or more. If you have multiple assets that have been sold during the course of the tax year, you may have a situation where it is necessary to calculate net gains or losses. When your capital gains exceed your capital losses, you have net capital gains; in the reverse case, you have net capital losses, which can serve as deductions on your tax return.
  
  

Tax Rates

• Tax rates for capital gains are usually lower than ordinary income rates. The federal capital gains tax rate is 15 percent and has been since the tax cuts adopted in 2001 and 2003. The tax cuts are set to expire on January 1, 2011, and the federal capital gains tax rate will increase to 20 percent.
  
  

Deferring Payment

• If you are seeking to defer payment of taxes on a capital gain, you may employ the use of a 1031 exchange in order to use the proceeds from your sale to purchase another "like-kind" asset. For more information on 1031 exchanges, see the References section.