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Question by meco1999: How do capital gains and dividend taxes work?
Assume you own a stock mutual fund or ETF in a taxable brokerage account for 10 years. Do you have to pay capital gains and dividend taxes every year you own it, even if you didn’t sell any shares during the year? Or do you only pay the capital gains and dividend taxes after you sell in year 10? Or do you pay dividend taxes every year (assuming you reinvest the dividends in your ETF every year), but only pay capital gains taxes after you sell in year 10?

Assume you’re in the 25% tax bracket.

Best answer:

Answer by J-10
You pay taxes on dividends generated each year.

You pay capital gains tax the year you sell it – when the gain is realized. Unrealized gains (appreciation in value before selling it) is not taxed year to year.

Give your answer to this question below!

I am using the profit to build a garage on my primary residence, can I use this to offset the capital gains tax on the 2 nd home I sold? I never lived in the 2nd home, it was a lake house. Also I had to give 1/2 of the profit to my father because he helped pay for the property, but the deed was in my name only.

I am planning on making some investments outside the country (stock market investments). Can I access the profits while living in the US or will I have to pay capital gains taxes on it? If so, how much will I have to pay say for $10,000 in profits?

Real Estate is something that everybody wants, and invests in. One reason is to have your own house, and the other is to take advantage of a possible rise in real estate values. Both are subject to the laws regarding how it will be treated in real estate tax laws. Therefore, it is important to know something, if not everything about what are the tax laws governing real estate taxes. Of course, your tax consultant is the best person to brief you on this. This article skims over the surface of the tax laws. Remember your tax consultant is the right person to advise you.

Capital gains tax is not levied on the sale of your ‘primary’ residence, so long as you have declared it as your ‘primary’ residence. You must have lived in the house you sold for at least two years before you can claim it as your ‘primary residence’.If your profit from the sale is not greater than $ 250,000, if you are a bachelor/spinster, and $ 500,000 if you are married. You pay capital gains tax on the balance of the amount over the limits specified above. To make it clear, let’s say you are a bachelor and you sell your primary residence for $ 260,000. You will have to shell out capital gains tax on $ 10,000, which is exactly the difference between the limit fixed under law. If you are married, then you don’t pay capital gains tax! Why because the limit above which capital gains tax is payable is $ 500,000. If the sale is above that price, you only pay, as shown, on the differential between the limit, and what you sold it for.

One can use the definition of primary residence to still make money on real estate, and not pay the capital gains tax.

You buy a house, and live in it for two years. That qualifies it as a primary residence. Meanwhile you let out your old house (where you stayed before for at least two years), for say two years, and you sell this old house within five years of shifting to your new home, which becomes your primary home in reality and then sell the old house, you would not have to pay the capital gains tax. Let us be clear. You stay in a house for 2 years, it becomes your primary residence. You move into another house,(now your primary residence after two years) and let out this old house for say another 2 years. As long as you sell the old house within 5 years of moving out, there is no capital gains tax to be paid. Read this very carefully.

One more way that provides you exemption from capital gains tax is that the sum for which you sold your real estate should be reinvested by purchasing another piece of real estate. This has to be done within two years of your selling the real estate you had earlier. In other words, the tax authorities want you to reinvest the money you made from real estate into another real estate property within two years of the sale of the real estate. Read this again please carefully.

Please do consult with a tax consultant. This article cannot be construed as a genuine construction of the law relating to real estate tax laws.

Will I have to pay capital gains on a home sale if I purchase another home during the same year? I plan to buy the new home first and then 3 to 6 months later sell my existing home, but both transactions within the same year. The home I will buy will be valued around 130K and the one I will sell will be around 80K. Any educated ideas or advice would be appreciated? Thank you.

I own some shares of a mutual fund. Will I be taxed in the coming years on the capital gains and dividends, even if I reinvest them and do not sell any shares?
And in what way will I be taxed?

When calculating an income tax penalty, do you count capital gains, bonuses, and other things when deciding if your income was uneven or not? Or is that supposed to only consider income listed on my w-2?

I have several stock mutual funds. Capital gains are unpredictable but when they are very high as they are this year I am very underwitheld and will be subject to penalties on my tax. Is there any way to compensate or deal with this?

House was total loss. We received insurance payment and it exceeds what we paid for the house. Can we rebuild or move elsewhere and not be required to pay capital gains?

What are Capital Gains Taxes:
The money you made from the time of acquisition or purchase to the time of sale of a valuable asset is known as your capital gains. This profit has a tax levied on it, which is called a capital gain tax. Some common examples of capital include large investments such as real estate, stocks, bonds, or mutual funds. The capital gains tax rates strongly affect the economy. Any increase could negatively affect millions, including middle class families with some stock or entrepreneurs trying to open their own small business. 

The Beginning:
Capital gains always remained below 7% from 1913 to 1921. It was not until the Revenue Act of 1921 when the tax made its first upward climb to 12.5%. The tax then waxed and waned, hiking up with the 1969 and 1976 tax reform acts, only to be reduced in 1978 by congress. More recently, the Taxpayer Relief Act of 1997 again, lowered the capital gains rate. Currently, the rate for most taxpayers is 15% on long-term capital gains (i.e. property held for longer than 12 months) and ranging from 10% to 35% on short-term capital gains (i.e. property held for less than 12 months). Individuals in the 10% and 15% tax brackets pay 0% on long-term capital gains.

The Rise and Fall:
The opposition to cutting capital gains taxes is usually rooted in the belief that the tax cuts benefit only the wealthy. However, this is only partly true. While most wealthy people own stocks and other capital, there are plenty of struggling businesses and middle class families depending on capital just as much. In reality, the cutting of capital gains taxes has proven to benefit the economy when tried in the past on multiple occasions. Historically, when capital gains taxes were raised it tended to harm the US economy more than help it. 

Election ‘08 and Capital Gain Taxes:
Controversy looms over the 2008 Presidential election with capital gains taxes in the spotlight. Sen. Barack Obama revealed his plan to raise capital gains taxes in order to make the distribution of wealth fairer. He cited 50 individuals benefiting from the tax sharing a $29 billion income between them. However, many experts strongly oppose Obama’s plan saying an increase will hurt the economy possibly knocking off almost 2% of Gross Domestic Product. 

Unfair Tax:
When it comes to the legitimacy of capital gains taxes and increases, there are solid arguments from both sides. Those who support low capital gains tax rates claim that any increase would discourage investing and hurt the economy. However, groups that support an increase are quick to deem low rates as unfair. They claim that by taxing capital gains at a lower rate then income taxes is essential a tax benefit for just the wealthy. “Some people who are richer than Croesus are paying 15 cents in federal income taxes on the marginal dollar, while you may be paying 25 or 35 cents,” claims economist Alan Blinder says on his blog, EconomistsView.