The net combined capital gains and losses are added to/ subtracted from your income before calculating your tax.
Capital gains (or losses) occur when you sell a capital (non-business) asset during the year. For most people, this is the sale of stocks or real estate property. This includes the sale of your home; however, some special rules apply to the sale of the house in which you live. Go to the separate link on this website for sales of personal residences. Gains or losses are reported on Schedule D of your federal tax return. The information you will need to report this is the purchase date, your cost, the sale date, and the sale price.
When you sell stock or property, you first need to compute the "gain" or "loss". To start, figure out the asset cost. This is the original amount you paid for it, plus purchasing costs (commissions, etc). Add to your purchase price any additional costs while you owned it, such as improvements to the property. If the asset is a mutual fund, you will need to also include any dividends or capital gains that were reported and taxed in other years. Many mutual fund companies now provide this information.
Now you know the cost or "basis". Take the amount you sold it for (this is the total sale price, not the amount of cash you received), minus the selling costs, minus your "cost". Now you have your "gain" or "loss".
If you owned the item less than 12 months, you have a short term gain or loss. If you owned the item more than 12 months, you have a long term gain or loss. In general, short term gains are taxed at the same rate as the rest of your income. Long term gains receive special treatment, and currently are taxed at a maximum rate of 15% (5% for lower income taxpayers). When you have more than one sale during the year, the gains and losses are combined.
Losses may be deductible, however; there are limits on how much you can deduct. Since gains and losses are combined for the year, you can lower your tax by planning your "loss" sales to occur in the same year as your "gains".
Capital gain treatment is available only on sales of "capital assets". Business assets have different rules. There are many different types of property and sales, and different rules may apply.
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