2022-2023 Capital Gains Tax Rates.

Most assets held for longer than a year are subject to a capital gains tax rate of 0%, 15%, or 20%. For assets held for a year or less, the capital gains tax rate corresponds to the ordinary income tax brackets which are 10%, 12%, 22%, 24%, 32%, 35%, or 37%.

What is the capital gains tax?

Investors pay a tax, known as capital gains tax, on the profit earned from selling an asset. The tax rate for capital gains is determined by factors such as filing status, taxable income, and the duration for which the asset was held before being sold. Capital gains tax applies to capital assets, which can comprise of stocks, bonds, cryptocurrency, real estate, tangible items like cars and boats, among other assets.

How capital gains taxes work

To determine how the profit is classified for tax purposes, the holding period, which is the time between purchasing the asset and selling it, is considered. If an asset is held for a year or less before being sold, any profit made is classified as short-term capital gains. If an asset is held for longer than a year, any profit made is classified as long-term capital gains.

Capital gains tax is only applicable to assets that have been sold for a profit or “realized.” This implies that investments that are still sitting in a brokerage account without being sold are not subject to taxation. This is advantageous to long-term investors since it enables the asset to grow in value without being taxed until it is sold. Additionally, capital gains taxes are progressive, akin to income taxes.

What is long-term capital gains tax?

If you hold an asset for more than a year and sell it, you may be subject to a long-term capital gains tax on the profit. The rate at which you will be taxed depends on your filing status and taxable income and can be either 0%, 15%, or 20%. Compared to short-term capital gains tax rates, long-term capital gains tax rates are typically lower.

What is short-term capital gains tax?

When you sell an asset that you’ve owned for one year or less, any profit you make is subject to short-term capital gains tax. The rate you pay is the same as your ordinary income tax rate, which depends on your tax bracket. You can check your federal tax bracket by reviewing the rundown on federal tax brackets.

Capital gains tax rates for 2022

If you sold assets for a profit in 2022, you should know that the capital gains tax rates for that year will apply. To report your capital gains, you need to fill out Schedule D and include it with your federal tax return (Form 1040) by either April 18, 2023, or by Oct. 16, 2023, if you have an extension.

 

Tax-filing status0% tax rate15% tax rate20% tax rate
Single$0 to $41,675.$41,676 to $459,750.$459,751 or more.
Married, filing jointly$0 to $83,350.$83,351 to $517,200.$517,201 or more.
Married, filing separately$0 to $41,675.$41,676 to $258,600.$258,601 or more.
Head of household$0 to $55,800.$55,801 to $488,500.$488,501 or more.

Capital gains tax rates for 2023

In 2023, assets sold for a profit will be subject to the 2023 capital gains tax rates. Taxpayers should report their capital gains on Schedule D and file it with their federal tax return (Form 1040) by April 2024. An extension may be obtained to file the return by October 2024.

Tax-filing status0% tax rate15% tax rate20% tax rate
Single$0 to $44,625.$44,626 to $492,300.$492,301 or more.
Married, filing jointly$0 to $89,250.$89,251 to $553,850.$553,851 or more.
Married, filing separately$0 to $44,625.$44,626 to $276,900.$276,901 or more.
Head of household$0 to $59,750.$59,751 to $523,050.$523,051 or more.

Capital gains tax rules and considerations

Here are some other rules and exceptions that are noteworthy.

  1. Collectible assets.

    The tables above show the capital gains tax rates for most assets, but there are some exceptions to keep in mind. Collectible assets, which include items like coins, precious metals, antiques, and fine art, can be taxed at a maximum rate of 28% for long-term capital gains. For short-term gains on these assets, the ordinary income tax rate applies.

  2. The net investment income tax.

    Investors with a modified adjusted gross income above certain levels may owe an additional 3.8%. This tax applies to the smaller amount between their net investment income or the excess of their modified adjusted gross income over certain thresholds.

Investors might be subject to the additional tax mentioned above if their modified adjusted gross income exceeds certain income thresholds, which are as follows:

  • Single or head of household: $200,000.
  • Married, filing jointly: $250,000.
  • Married, filing separately: $125,000.
  • Qualifying widow(er) with dependent child: $250,000.

How to avoid, reduce or minimize capital gains taxes

1.Hold on

If you can, try to hold an asset for at least a year to qualify for the long-term capital gains tax rate, which is generally much lower than the short-term capital gains rate for most assets. You can use our capital gains tax calculator to see how much you could potentially save.

If you can, try to hold an asset for at least a year to qualify for the long-term capital gains tax rate, which is generally much lower than the short-term capital gains rate for most assets. You can use our capital gains tax calculator to see how much you could potentially save.

2. Use tax-advantaged accounts

These accounts, such as 401(k) plans, individual retirement accounts, and 529 college savings accounts, allow investments to grow tax-free or tax-deferred. Selling investments within these accounts does not incur capital gains tax. Roth IRAs and 529 accounts offer significant tax benefits, as qualified distributions from these accounts are tax-free. In other words, you do not pay taxes on investment earnings. However, with traditional IRAs and 401(k)s, taxes are paid when distributions are taken from the accounts in retirement.

3. Rebalance with dividends

Instead of having dividends reinvested in the investment that paid them, invest them in your underperforming investments to rebalance. Normally, you would rebalance by selling securities that are performing well and investing that money into those that are underperforming. However, using dividends to invest in underperforming assets will enable you to avoid selling strong performers, and thus, avoid capital gains that would arise from that sale.

4. Exclude home sales

To qualify for exclusion, you must use your home as your main residence for at least two years within the five-year period before selling it, and you must have owned the home during that time. Additionally, you cannot have excluded capital gains from another home within the two-year period before the home sale. If you meet these criteria, you can exclude up to $250,000 in gains from a home sale if you’re single, and up to $500,000 if you’re married filing jointly.

5. Carry losses over

You can offset gains using investment capital losses. If, for instance, you make a $10,000 profit from selling one stock and sell another at a $4,000 loss in the same year, you’ll pay taxes on capital gains of $6,000. If your net capital loss surpasses your net capital gains, you can use it to offset your ordinary income by up to $3,000 ($1,500 for married couples filing separately). You can carry any additional losses forward to offset capital gains or up to $3,000 of ordinary income per year in the future.

6. Consider a robo-advisor

Robo-advisors can manage your investments automatically, and they often use smart tax strategies, such as tax-loss harvesting, which entails selling losing investments to counterbalance the gains from winners.

See our Capital Gains Calculator that demonstrates the potential taxes applicable if you choose to sell your property instead of exchanging it.

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