Final answer:
Gains and losses from capital asset transactions for tax purposes are recorded using capital gains taxation.
Step-by-step explanation:
For tax purposes, gains and losses from capital asset transactions are recorded using a system called capital gains taxation. Capital gains refer to the profits made from the sale of capital assets, such as stocks, bonds, or real estate. When a taxpayer sells a capital asset for a higher price than what they paid for it, they generate a capital gain. Conversely, if they sell the asset for a lower price than what they paid, they incur a capital loss.
The tax treatment of capital gains and losses depends on how long the asset was held before being sold. For assets held for less than one year, any gains or losses are considered short-term and are subject to ordinary income tax rates. For assets held for more than one year, the gains or losses are considered long-term, and the tax rate is usually lower, with rates ranging from 0% to 20% depending on the taxpayer's income. However, certain high-income individuals may also be subject to an additional 3.8% surtax on net investment income.
To report capital gains and losses for tax purposes, taxpayers must file Schedule D along with their federal income tax return. The form requires information about the asset, the purchase price, the sale price, and any relevant expenses or adjustments. Overall, the tax treatment of capital gains and losses aims to tax investment income fairly and create an incentive for long-term investments.