This is about US tax law.
When you sell an asset in a year, how does your income computed?
Here is a scenario:
say you are a 100K/year salary guy. You sell a home ( an investment home, not your primary residence ) for 1M with 500K capital gain. Is your income for that year, 100K + 500K? or because you got a 1M in the sale, your income would be 1.1M?
My gut says the income should be the salary + the capital gain and therefore it should be 600K.
If this is correct, what about a capital loss. Let's say you got a capital loss of 300K rolling over from the previous years from say some stock market loss.
Would you then factor that in and say, the real capital gain on the home sale would be 500K-300K and therefore your income for that year would be computed as 200K + 100K = 300K?
Determining the income does affect the tax rate.