July 1, 2025
The framework for federal taxation of capital gains and losses for individuals is built upon a set of foundational principles that define what constitutes a taxable event, the nature of the asset involved, its cost, and the duration of ownership. A precise understanding of these core concepts—the definition of a capital asset, the determination of basis, the "sale or exchange" requirement, and the holding period—is an absolute prerequisite for the correct calculation, reporting, and strategic management of capital gains and losses. These principles establish the boundaries between different types of income and dictate the subsequent tax treatment.
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