Tax Analysts, a leading provider of tax news, analysis, and commentary, covers developments related to treatment of income, including characterization and treatment of capital gains and losses. Subchapter P of the Internal Revenue Code (Sections 1201 – 1298) addresses capital gains and losses.

Capital gains or losses result from the disposition of capital assets, defined in 26 USC 1221(a) as any property held by a taxpayer, except those items listed in that provision. The sale or exchange of such assets can result in a short-term capital gain or loss, or a long-term capital gain or loss. The treatment of these types of gains and losses also varies depending on the identity of the taxpayer and the circumstances surrounding the disposition.

For high-income taxpayers, the tax rates on long-term capital gains are lower than that earned on wages or salaries. The rationale for a low capital gains tax rate is that the lower rate encourages entrepreneurship and investment in the economy. Whether, and to what extent, special treatment of capital gains and losses is warranted is an ongoing question. As Tax Analyst’s contributing editor Marty Sullivan has pointed out, because the tax on wages and salaries is generally higher than the tax on long-term investments, and because capital gains income is in large part realized only by the wealthiest Americans, “The way you get rich in this world is not by working hard…it’s by owning large amounts of assets and having those things appreciate in value.” 

Tax Analysts promptly and consistently covers IRS guidance, court opinions, and analysis affecting treatment and taxation of capital gains and losses. Subscribe to Tax Notes Today Federal to learn more.