The United States Tax Code is a complicated document. The power to levy taxes on the U.S. population belongs to Congress, and the authority to collect those taxes rests with the Executive branch. The Internal Revenue Service is the agency within the executive branch of the federal government that collects the taxes. But states also have the power to levy taxes on their own populations in addition to whatever the federal government does. One part of an individual’s or corporate entity’s financial profile which is subject to taxation is capital gains. To de termine taxation of capital gains, one must also consider capital losses. Gains are taxable, and losses may help offset tax liability.

When individuals sell or dispose of property and realize an amount over the adjusted basis of that property they have gain. When they sell or dispose of property and realize an amount below the adjusted basis of the property they have loss.

Capital gains are gains from the sale or exchange of capital assets. Capital losses are losses or reductions in value resulting from the sale or exchange of capital assets. To more fully understand the concepts of capital gains or losses, individuals need to understand the concepts of capital assets and basis. Once they understand these two concepts, then they can begin to see how they function within the broader context of the tax rules for capital gains and losses.