We’ve all heard the buzz about capital gains income being taxed at a favorable rate. Prior to 2013, the rate for long-term capital gains maxed out at 15%, which coincides with the overall tax rates that former presidential candidate Mitt Romney and billionaire Warren Buffet pay. They structure (or should I say their accountants structure) their income in such a way that they derive most of it from transactions that result in long-term capital gains, which enables them to  pay a smaller percentage of their income in taxes than most Americans pay.

One of the loopholes to a low-tax scenario is carried interest, which is essentially a commission received by hedge fund managers. Rather than being subject to regular income tax, FICA and Medicare and all other payroll taxes that anyone else on commission must pay, they enjoy taxation at a modest capital gains rate.

Effective for 2013, the long capital gain rate is 20%. Rates of 25% or 28% can also apply to special types of net capital gains. For lower-income individuals for 2012, the rate may be 0% on some or all of the net capital gains.

Short-term capital gains taxes are levied on assets held for less than one year. Sales of these assets are subject to taxes at ordinary income tax rates and they do not get favorable treatment like long term capital gains receive.

The IRS defines a capital asset as “almost everything you own and use for personal or investment purposes. A capital gain or loss occurs when you sell a capital asset.” This includes your home, vehicles, art work, stocks and bonds and household furnishings.

If you sell any of your personal belongings, you may be required to pay capital gains taxes on any profit you enjoy. So let’s say you bought a recliner chair for $200 then turn around and sold it for $300. You would be required to report the sale on Schedule D of your tax return and pay taxes on the $100 profit. However, if you lost money on the deal, which is usually the case with personal possessions, you would have a capital loss. But guess what? You can’t deduct it.

This same rule applies to your personal residence. If you have a profit of more than $250,000 or $500,000 if married filing joint, you have to pay taxes on that profit. With the real estate market on the skids for so many years, no one is worried about profits and taxes on a personal residence. Losses are more the story but those are not deductible.

But if the property is considered investment property, such as stocks and bonds, you are entitled to deduct the loss. On your tax return, you will net capital losses against capital gains and pay taxes on the difference or deduct the difference. For example, if you sold a bar of gold for a gain of $5,000, and some stock for a loss of $9,000, you have a net capital loss of $4,000.

The annual limit on capital losses is $3,000. You will deduct $3,000 this year on your tax return and carry forward the $1,000 remainder to next year’s tax return.

This is one reason it is important to take a copy of your prior year income tax return to a new tax professional when getting your taxes prepared. You want to make sure those carry forwards are figured in to your current year tax return. Be sure to point out the carry forwards to the new tax professional.

Use Form 8949 – Sales and Other Dispositions of Capital Assets – to calculate your gains and losses. The subtotals are then carried to Schedule D.

Bonnie Lee is an enrolled agent admitted to practice and representing taxpayers in all 50 states at all levels within the Internal Revenue Service. She is the owner of Taxpertise in Sonoma, Calif., and the author of Entrepreneur Press book, “Taxpertise, The Complete Book of Dirty Little Secrets and Hidden Deductions for Small Business that the IRS Doesn't Want You to Know.” Her new e-book Taxpertise for the Creative Mind Murder, Mayem, Romance, Comedy and Tax Tips for Artists of all Kinds is available at all major booksellers. Follow Bonnie Lee on Twitter and on Facebook.