Capital gains tax rates
Understanding the thresholds for long-term capital gains tax, especially for different filing statuses, is of utmost importance. If you hold an asset for one year or less, the gains can be taxed at ordinary income tax rates. However, if you hold the asset for over a year, the long-term capital gains tax rates come into play. These rates, which can range from 0% to 20%, depending on your filing status, can significantly impact your tax obligations. By grasping these thresholds, you can better manage your tax obligations and make more informed financial decisions.
Please see the IRS link below in determining the above.
https://www.irs.gov/taxtopics/tc409
Please read the below note (This is absolutely critical to maximize the output for these calculators!).
The long-term capital gains tax rate is progressive. For example, a married couple would have a long-term capital tax rate of 15% on gains between $89,250 and $553,850. Anything over $553,850 would be taxed at 20%, assuming no other taxable income. To utilize the calculators on this website, if you have a taxable gain of $1,000,000 (less any exclusion) and no other taxable income, you should input a weighted average federal tax percent of 17.25% or ($553,850/$1,000,000 * 15%) + (($1,000,000 less $553,850) / $1,000,000) * 20%. But, a quick estimate might be to assume $500,000 of your gain is taxed at 15% and $500,000 is taxed at 20%, hence a rough weighted approximate tax rate is 17.5% or (15% * 1/2) plus (20% * 1/2), again assuming no other taxable income. Remember, the calculators on this website are designed to provide an estimate, although only preparing the actual returns will give you an accurate ending number. In applying the below thresholds, you are using total taxable income, not just total capital gains. So, if you have additional taxable income, the long-term capital gains rate could be pushed closer to 20%. If you have other taxable income of $100,000 (such as from wages), ($553,850 less $100,000) or $453,850 of the $1,000,000 long-term capital gain will be taxed at 15% and ($1,000,000 less $453,850) or $546,150 will be taxed at 20%, pushing the effective long-term capital gains tax rate to 17.74%.
Below are the IRS progressive tax rate for long-term capital gains.
A capital gains rate of 0% applies if your taxable income is less than or equal to:
- $44,625 for single and married filing separately;
- $89,250 for married filing jointly and qualifying surviving spouse; and
- $59,750 for head of household.
A capital gains rate of 15% applies if your taxable income is:
- more than $44,625 but less than or equal to $492,300 for single;
- more than $44,625 but less than or equal to $276,900 for married filing separately;
- more than $89,250 but less than or equal to $553,850 for married filing jointly and qualifying surviving spouse; and
- more than $59,750 but less than or equal to $523,050 for head of household.
However, a capital gains rate of 20% applies to the extent that your taxable income exceeds the thresholds set for the 15% capital gain rate.
