Understanding Capital Gains Tax

To understand the capital gains tax, we must begin by understanding exactly what is meant by "capital gains". Capital gains is the income that a person gets from the sale of an investment. These investments may take the form of a piece of real estate property like a house or a farm. It can also be a family business or even a work of art. The capital gain is basically defined as the difference between the money that is realized from the sale of an asset and the price that was paid for it.

The amount of the tax that is imposed varies and actually depends on a variety of factors, which even include how long the seller has owned the investment/property as well as what type it is. The capital gains tax will not be asked for until the investment/property is actually sold. For instance, if the stocks in your portfolio have been appreciating in value, you can rest assured that you won't have to pay any type of taxes on them unless you have actually sold the stocks.

Investors should also remember that unlike other taxes, the rate imposed on the capital gains tax is not fixed. The rate imposed will depend on how long the asset has been owned. A good example would be an asset that has been owned for less than year. The capital gains tax that will be imposed on the sale of this property will be at the same rate as an ordinary income. On the other hand, the tax rates that will be given on the sale of a property that has been in the possession of the owner for more than a year can end up being lower.

As with all other tax impositions, there are a few rules that you need to be aware of in order to prevent any kind of major tax liabilities.

One rule that you should remember is that in most cases you can completely avoid capital gains tax if the house that you are planning to sell is considered as your principal residence. In order for a house to be considered as the principal residence you must have taken residence there for two of the last five years. The two years imposed don't necessarily have to be sequential years or even the most recent two years. Just as long as you fulfill the two-year rule the government will consider the house your principal residence. In fact, you don't even need to be living at the house at the time that you sell your property.

Does Class Warfare Prevent Barack Obama and Hillary Clinton From Understanding Taxes?

During the April 16th debate between Barack Obama and Hillary Clinton, the young senator said repeatedly that he would not raise taxes on middle class earners, those he described as earning between $200,000 and $250,000 per year.

He said the following: "I not only have pledged not to raise their taxes, I've been the first candidate in this race to specifically say I would cut their taxes."

Later, he said he's open to raising the current capital gains tax rate from 15% to 28%.
This alone would nearly double that rate and raise taxes on all 100 million workers who own stock, mostly through owning 401 K'S.

Moderator Charlie Gibson asked Senator Obama why he wants to "increase the capital gains tax when history shows that a higher rate brings in less revenue."

Senator Obama responded by citing rich hedge-fund managers. He then declared that "raising the capital gains tax is "necessary to make sure . . . that our tax system is fair and that we are able to finance health care for Americans who currently don't have it and that we're able to invest in our infrastructure and invest in our schools. And you can't do that for free."

No senator, you can't do that for free. In fact it would cost a fortune. So why propose something that gets you further away from it?

In 2005, 47% of all tax returns reporting capital gains were from households with incomes below $50,000, and 79% came from households with incomes below $100,000.

When Mr. Gibson pressed further about the self-defeating nature of this idea, Senator Obama deflected it to John McCain and how Senator McCain's proposals would in effect drive us further into the terrible, ruinous, tragic and hopeless economy which according to at least one Democratic spokesman, obviously unconcerned with childlike exaggeration, declared that the Bush economy "has made us the most hopeless Americans in US history."

Senator Clinton Also Receptive To Raising Capital Gains Tax Rate

Hillary Clinton said that she "was open to hiking the capital gains tax rate."
However, she too had earlier stated emphatically during Wednesday's debate she would not "raise a single tax on middle-class Americans, people making less than $250,000 a year."

Senator Obama Causes Further Confusion

Senator Obama also wants to lift the cap on wages subject to the payroll tax. That cap was $97,500 in 2007 and is $102,000 this year.

That would raise the maximum payment to $7800 on a tax that had a maximum payment of $60 a year, in its initial year.

It became law in 1935, the argument in favor was that it would always be just a small affordable amount that everyone could afford in order to have a safety net upon retirement.

Opponents in 1935 argued that it would become just another way to fund more programs, and like all government programs would grow incessantly. It has done exactly that.

Congress has already stolen just under $2 trillion dollars from that fund and spent it on old and new programs. It has replaced that $2 trillion dollars with worthless paper IOU'S and put that collection of worthless paper in the TRUST FUND.

Democratic congressmen constantly deceive taxpayers by essentially describing those IOU'S as cash. This allows them to say that social security is solvent till 2041, instead of admitting that it goes from a yearly surplus to a yearly deficit in 2017.

That deficit will soar without drastic reductions in government spending.

Naturally those who contribute little or nothing to FICA are all in favor of raising FICA taxes on hard working Americans. Yes they'll cheer Barack on, hoping that some of the higher payments from others, will come their way.

Barack supposedly represents sweeping change!

What that change is all about is a change to a much higher rate of redistribution than that which presently exists.