When you sell a capital asset like stocks or a home you own, the difference between the amount you sell it for and you paid for it (or cost basis) is classified as a capital gain or a capital loss. Capital gains and losses are further classified as long-term or short-term, depending on how long you hold the investment before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term. Based on the duration of asset ownership and the tax filers personal tax rate, we can calculate their capital gains tax rate.  For 2011-12 this is shown in the table below.

2011-2012 Capital Gains Tax Rates

Short-term capital gains are taxed at ordinary income tax rates up to 35%. Long-term capital gains (assets held for more than one year) are taxed at 0%% for taxpayers in the 10% and 15% tax brackets and 15% for taxpayers in the 25%, 28%, 33%, and 35% tax brackets. The 0% tax rates for those in the 10% and 15% tax brackets was a special provision in the bush-era tax cuts which were extended to 2013.

If your capital losses are more than your capital gains, you can claim a capital loss deduction in your tax filing. Your allowable deduction is $3,000 ($1,500 if you are married and filing separately) and can be claimed against your ordinary income. There are various exceptions and special provisions when it comes to the treatment of capital gains or losses and you should consult IRS Publications 17 and 550 for more details.