Capitalization of assets has its own benefits. Since long term assets are expensive, expensing the cost over a period of years is beneficial especially for small enterprises. Capitalizing assets increases a company’s balance without affecting its liability balance.
Capitalization of long term assets is a must. The process should be done diligently in accordance with the rules of the IRA and GAAP. Capitalization of long term assets provides a clear picture of the health of the company on the balance sheet.
Long term assets result in long term capital gain or even loss. Long term assets are those assets that you cannot liquidate for more than a year. The difference between the sale price and the purchase price equals capital gain.
Capital gains can be short term and long term as well. Capital gains are more beneficial in the long run because the IRS assigns a lower tax rate to long term capital gains as compared to short term. As of 2019, the IRS charges anywhere from 0 to 20%. If you own a home or land since 20 years and you wish to sell it then you will gain capital on it and hence will be charged tax on it. Capital gains are only realized once an asset is sold.
You should also keep in mind that besides capital tax, state and local taxes are also applied. he Capital Gains and Qualified Dividends Worksheet in the Form 1040 instructions specifies a calculation that treats both long-term capital gains and qualified dividends as though they were the last income received, then applies the preferential tax rate.