[Timallen]

Hi,
I know that capital gains are taxed, but are they taxed as a subset of income tax or are they distinct? My question applies to both long-term and short-term gains.
For example, if my only income is from day-trading (that is, short term capital gains) is it treated exactly as income tax (personal deductions, brackets for married couples, etc.).
Another implication is world-wide taxation. If I live abroad and realize a capital gain, is it taxed in the U.S. as income or is it exempt, and if so does it make a difference if the asset is American or not?
Thanks a lot!
Tim

[AtlantaTaxExpert]

Tim:

If you are a U.S. citizen, you pay taxes on ALL world-wide income, so it makes no difference whether the asset is American or not. Further, you may pay taxes to the country where the asset is located. You can get a Foreign Tax Credit (Form 1116) for the payment of those taxes to the host country.

The specifics about the sale of the capital assets is reported on Schedule D and (if necessary) D-1. The capital gains computation is done on Page 2 of the Schedule D.

Short-term capital gains (a year or less) is taxed as ordinary income.

Long-term capital gains is taxed at either 5% or 15%, depending on your marginal tax rate.

[MukatA]

You live in a foreign country but your brokage firm is in the U.S. then it is US source income. You must pay taxes in the U.S. even if you are not a U.S. citizen or resident.

[AtlantaTaxExpert]

Agreed.

[Visa Taxes Expert]

Agreed!

[The Texas Tax Expert]

I disagree with MukatA. If you reside outside the US and sell stock, it will be foreign source, as long as it is subject to tax in the foreign country at 10% or more.

[IntlTax]

I agree with TTE. In addition, if you are not a citizen or resident of the U.S. the capital gain doesn't even need to be subject to any foreign tax for it to be considered foreign source income.

[AtlantaTaxExpert]

Noted!