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What’s the difference between short-term and long-term capital gains and losses?

When you sell a capital asset, the difference between the adjusted basis in the asset and the amount you realized from the sale is a capital gain or a capital loss. You have a capital gain if you sell the asset for more than your adjusted basis. You have a capital loss if you sell the asset for less than your adjusted basis.

Capital gains and losses are classified as short-term or long-term in order to arrive at your net capital gain or loss.

Generally, short-term capital gains and/or losses are for assets that you hold for one year or less before disposal. On the other hand, if you hold an asset for more than one year before you dispose of it, your capital gain or loss is long-term. For example, if you sell stock that you owned for 1 year and 1 day, then it’s considered a long-term sale. For exceptions to this rule, such as property acquired by gift, property acquired from a decedent, or patent property, refer to Publication 544, Sales and Other Dispositions of Assets; or for commodity futures, see Publication 550, Investment Income and Expenses.

If you have a sale to report and didn’t received Form 1099-B, determining if the sale is short term or long term is crucial. Short-term gains are taxed as ordinary income while long-term capital gains are taxed at a lower rate. If the exact date is not provided on your 1099-B, you may type in "Various" in the box for date acquired as long as long as the sale is listed as short term or long term.

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