Capital gains tax is a tax levied on the profit made from the sale of assets such as stocks, bonds, property, and other investments. When selling an asset, it is important to know whether capital gains are based on the contract date or the settlement date.
The contract date is the day on which the buyer and seller agree to the terms of the sale. The settlement date, on the other hand, is the day on which the transaction is completed, and the payment is made.
Under the tax law, capital gains tax is based on the settlement date, not the contract date. This means that the date on which the payment is made is more important than the date on which the contract was signed.
For example, if you enter into a contract to sell your stock on December 1, but the transaction is not completed until December 12, your capital gains tax liability will be based on the December 12 settlement date.
This is important to know because it affects the timing of when the tax liability arises. If you sell an asset in December but do not settle until January of the following year, the capital gains tax will be due in the following year.
It is also important to note that the tax rate for capital gains depends on how long you have held the asset. If you hold an asset for more than a year before selling it, the tax rate is generally lower than if you sell it within a year.
In summary, capital gains tax is based on the settlement date, not the contract date. It is important to be aware of this when selling assets, as it affects the timing of the tax liability and the tax rate applied. As always, it is recommended to consult with a tax professional for specific advice regarding your individual circumstances.