Advantage Long term Gain in US Taxation

In U.S. taxation, capital assets encompass all assets except those used in business operations. Gains from capital assets are classified as capital gains, while gains from business assets are considered ordinary gains. For individual taxpayers, capital gains on assets held long-term (over one year and one day) benefit from preferential tax rates, while short-term gains are taxed at ordinary rates. For non-individual taxpayers, however, there is no preferential rate, and all capital gains are taxed at normal rates. Generally, whether an asset is considered short-term or long-term depends on the holding period, with one year and one day as the key threshold.

A unique rule applies to inherited capital assets: they are automatically treated as long-term assets, regardless of how long they were held by the deceased. This distinction simplifies the tax treatment for beneficiaries by ensuring that all inherited capital assets are eligible for the favorable long-term capital gains tax rate when sold. This classification is uniform across various types of assets, making the capital gains treatment more straightforward under U.S. tax law.

By CA L.Muralidharan and CPA L.Mukundan

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Advantage Long term Gain in US Taxation

By: Sri L. Muralidharan

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