Capital Gains & Losses: Long & Short-Term Tax Rates
Capital
Gains
Understanding Capital Gains Tax
You hear the phrase capital gains a lot when people talk about selling a home, stocks, or other investments - so what is it? Generally, most items you own and utilize for personal use, business, or investment are capital assets. This includes homes, stocks or bonds, gems and jewelry, household furnishings, coin or stamp collections, metals like gold or silver, and businesses. For more details, read the IRS Publication on Investment Income and Expenses or this one on Sales and Other Dispositions of Assets. When you eFileIT, you don't have to worry about the details as the eFile Tax App will do the math for you - sign up free here.
Key points:
- Capital gains occur when an asset (property, stock, home or land, collectibles, etc.) is sold and you make a profit. A capital loss occurs when you sell an asset and you lose money based on its original value.
- There is a 0% tax rate on long term investments depending on your annual income - see more details in the rate table below.
- The IRS taxes your capital gains at different rates depending on when the asset was sold, your filing status, and your effective tax rate.
- Capital losses happen when you sell an asset for less than what you paid for it - offset your gains by reporting losses through a process called tax-loss harvesting.
- Capital gains and losses are both reported on Schedule D; Form 8979 is usually included - eFileIT.
- You can use Form 1099-S reporting a home sale to file the income with your taxes - see step-by-step 1099-S instructions.
- Use the eFile Tax App to determine your capital gains taxes for you so you don't have to worry about calculating these rates.
When you sell a piece of property or stocks and you make a profit from the sale, the profit income that you make is called a capital gain and is considered taxable income by the IRS. Income from capital gains is taxed differently than regular income if it is held longer than a year. How the capital gains are calculated and how much is taxed can be confusing, but eFile.com makes it easy for you. When you start a free tax return on eFile.com, you don't have to guess how to report your capital gains nor whether or not you need to pay taxes on them. Simply answer a few questions during the tax interview, and we will prepare and complete the correct tax forms to calculate and report any capital gains tax (or losses) that is appropriate for you. e-File your upcoming IRS and applicable state income taxes by Tax Day and do IT less taxing on eFile.com.
Related: How are NFTs and Cryptocurrencies Taxed?
Reporting Capital Gains and Losses on Your Tax Return
All capital gains and losses are required to be reported on your tax return. When you prepare and e-file with eFile.com, the information you enter will allow the app to generate and complete these forms for you. Capital gains and losses are reported on Form 8949 and summarized on Schedule D - eFileIT. The amounts are then reported on your Form 1040 - these are all generated by the eFile app. Capital loss carryovers are reported using the Capital Gains Carryover Worksheet. When using the eFile app, you do not need to worry about this.
eFile instructions:
If you end up with a taxable capital gain for the tax year, you may have to withhold and make estimated tax payments. To optimize your tax withholding, utilize this free eFile.com TAXometer.
Prepare and e-file your taxes now or before Tax Day to get the most out of your tax refund and avoid any tax penalties.
Investments and Taxes
When you purchase, hold, trade, or sell an asset, this is going to affect your tax situation. This may be from selling property, selling a collectible, trading crypto or an NFT, or other forms of investing. The most common form of trading and investing comes from the stock market. When a purchaser buys a stock in a company at a set price, as the company's value fluctuates, so does the stock; the stockholder can sell high to make a profit and thus incur a capital gain or sell low and take a capital loss. This is all reported at the end of the year by filing an individual income tax return. The amount of time a stock or other asset is held determines how it is taxed.
- Short-term: If an asset is held or owned for less than a year before selling, then any capital gain is considered short-term. Short-term capital gains are taxed differently than long-term capital gains; they are taxed at your ordinary tax rate or your tax bracket for the given tax year. Not sure of your bracket? Try out this free RATEucator on eFIle.com to find out now. Additionally, use the free STATucator to help determine your filing status, which will impact your tax rate. There is a maximum rate of 28% for certain capital gains. See a publication on Investment Income and Expenses to learn more.
- Long-term: If an asset is held or owned for more than one year, then any profit from the asset's sale is considered a long-term capital gain. Long-term capital gains tax rates are 0%, 15%, or 20%, depending on your taxable income and filing status. Yes, this means that you can pay as little as 0% in federal income taxes on your gains when you sell a long term asset.
To determine if the capital gain is short-term or long-term, count the number of days from the day after you acquire the asset through and including the date you sold the asset. To find estimated rates for a long-term gain, see the tables below to find the rates for current, future, and recent tax years.
Unrealized Capital Gains and Losses
When you hold onto an asset, such as a stock or other property, it's value fluctuates over time. When the value of it grows, you have what is called an unrealized capital gain or a gain in which has not yet been finalized since you have not taken ownership of that income. For example, you may have unrealized gains if you are holding onto a stock which has been growing steadily over a year, but you have not yet sold it. In theory, when you sell this stock, you will have a capital gain, but until it is sold, it is just hypothetical income you could receive known as an unrealized gain.
Currently, unrealized capital gains are not taxed since they are not considered income.
Below are capital gains tax tables for the current year, the next tax year, and previous years for back taxes. These are for informational purposes as the eFile Tax App will calculate capital gains taxes for you.
Long-Term Capital Gains for Tax Year 2023
Single
Taxable income up to $44,625
$44,625 - $492,300
More than $492,301
Married Filing Jointly
Taxable income up to $89,250
$89,250 - $553,850
More than $553,851
Married Filing Separately
Taxable income up to $44,625
$44,625 - $276,900
More than $276,901
Head of Household
Taxable income up to $59,750
$59,750 - $523,050
More than $523,051
Long-Term Capital Gains for Tax Year 2024
Single
Taxable income up to $47,025
$47,025 - $518,900
More than $518,900
Married Filing Jointly
Taxable income up to $94,050
$94,050 - $583,750
More than $583,750
Married Filing Separately
Taxable income up to $47,025
$47,025 - $291,850
More than $291,850
Head of Household
Taxable income up to $63,000
$63,000 - $551,350
More than $551,350
Long-Term Capital Gains for Tax Year 2022
Single
Taxable income up to $41,675
$41,676 - $459,749
More than $459,750
Married Filing Jointly
Taxable income up to $80,350
$80,351 - $517,200
More than $517,200
Married Filing Separately
Taxable income up to $41,675
$41,676 - $258,600
More than $258,600
Head of Household
Taxable income up to $55,800
$55,801 - $488,850
More than $488,850
Long-Term Capital Gains for Tax Year 2021
Single
Taxable income up to $40,400
$40,401 - $445,850
More than $445,850
Married Filing Jointly
Taxable income up to $80,800
$80,001 - $501,600
More than $501,600
Married Filing Separately
Taxable income up to $40,400
$40,001 - $250,800
More than $250,800
Head of Household
Taxable income up to $54,100
$53,601 - $473,750
More than $473,750
Long-Term Capital Gains Rates For Tax Year 2020
Single
Taxable income up to $40,000
$40,001 - $441,450
More than $441,450
Married Filing Jointly
Taxable income up to $80,000
$80,001 - $496,600
More than $496,600
Married Filing Separately
Taxable income up to $40,000
$40,001 - $248,300
More than $248,300
Head of Household
Taxable income up to $53,600
$53,601 - $469,050
More than $469,050
Capital Gains and Selling Your Home
If you owned and lived in the home for two of the five years before you sold it and your filing status is single, then up to $250,000 of the profit is tax-free - in other words, no capital gains taxes are applied. If you are married and file a joint return, the tax-free amount doubles to $500,000, and you can exclude this amount from your taxable income. You cannot exclude the income if you already excluded income from another home sale in the 2 years before the sale of this home.
This table will help you determine if you will pay taxes on the sale of your home:
Single - $250,000
At least 2 years
At least 2 of the last 5 years
You did NOT exclude capital gains from the sale of any other home
Yes
Married Filing Joint - $500,000
At least 2 years
At least 2 of the last 5 years
You did NOT exclude capital gains from the sale of any other home
Yes
If you did not live in the house for at least two years of the last five, you would be unable to take the exclusion. This means that most homes you rent out or rent as a vacation home are generally not eligible.
See also: the home mortgage tax deduction and various deductions to claim for home improvements. Since your home is like an investment, home improvements increase the value of your asset, and some may even be tax deductible.
Capital Loss Deduction
If a capital gain is the money that you make on the sale of your home or investments, then the money you lose is called a capital loss - in other words, you made no profit from selling your asset and instead lost money. The capital loss can be deducted from your income. However, there are some limits to this. You can deduct capital losses on investment property only, not on property that was owned for personal use. Losses on your investments are first used to offset capital gains of the same type. For example, short-term losses are first deducted against short-term gains, and long-term losses are deducted against long-term gains. If your losses exceed your gains, you can deduct the difference on your tax return, up to $3,000 per year ($1,500 for those married filing separately), but they are not considered a regular itemized deduction. If your net loss exceeds the maximum allowed amount, you can carry the excess amount to future tax years.
File your taxes on eFile.com and we will calculate and report all of this information on the proper tax forms for you.
Tax-Loss Harvesting
A common, simple, and legal way to save money on taxes is to utilize a process called tax-loss harvesting. This stock investing strategy involves selling different investments at losses to offset your gains, allowing you to pay less taxes to the IRS. In doing so, you must also have capital gains from selling an asset at a gain since the loss can only offset your taxes from a gain. If you do not have any gains this year, you can carry the loss forward into a year which you do have gains.
Related: some robo-advisors harvest your losses.
Tax-loss harvesting serves to turn a negative (loss) into a positive (paying less taxes). While not encouraged to purposely lose money on an asset, if you happen to see an asset lose money, consider selling it and using this loss to offset any gains you may earn.
For an example, if you invest in stocks during the year and buy an asset for $500, then later sell it at $600, you then have a capital gain of $100. If you bought another asset at $800 and sold it at $600, you would have a loss of $200. With this, you can offset your $100 gain with the $200 loss, and use the remaining $100 of your loss to offset your personal income up to a certain amount described above.
Confused? Start free on eFile.com - your gains and losses are calculated for you so you always pay as little taxes as legally possible based on your entries.
Frequently Asked Questions
1. What is the difference between long-term and short-term tax rates?
- Long-Term Tax Rates: These apply to assets or investments that are held for an extended period, typically more than one year. Long-term capital gains are profits made on the sale of assets held for over a year, and they are often taxed at a lower rate than short-term gains.
- Short-Term Tax Rates: These apply to assets or investments that are held for a relatively short period, typically one year or less. Short-term capital gains, for example, are profits made on the sale of assets held for one year or less, and they are often taxed at a higher rate than long-term gains.
2. What are the capital gains and losses tax rates?
Capital gains tax rates vary depending on your income and the type of asset sold. Short-term capital gains (for assets held for less than a year) are typically taxed at your ordinary income tax rate, which can range from 10% to 28%. Long-term capital gains (for assets held for more than a year) have preferential rates, generally ranging from 0% to 20% for most taxpayers, with some exceptions for higher-income individuals.
3. Can state taxes impact capital gains and losses differently?
Yes, state taxes can impact capital gains and losses differently because each state in the United States has its own tax laws and rates. Some states may tax capital gains at different rates or offer special deductions, exemptions, or credits that can affect the overall tax liability on capital gains and losses. It's essential to consider both federal and state tax implications when managing your investment portfolio.
4. What is the short-term capital gain tax?
Short-term gains are taxed at the taxpayer's top marginal tax rate or regular income tax bracket, which can range from 10% to 28%. Short-term capital gains receive less preferential tax treatment compared to assets held for at least one year taxed at lower long-term capital gain rates.
5. What is the long-term capital gain tax rate?
The long-term capital gains tax rate in the United States can vary depending on your income level and the type of asset you're selling. The rates were typically 0%, 15%, or 20%. Generally, if you're in a higher income bracket, you'll pay a higher rate. It's essential to consult because current tax rates can change over time.
6. When do you pay capital gains tax?
Capital gains tax is typically paid when you sell an asset, such as stocks, real estate, or other investments, and make a profit from the sale. The tax is usually due in the tax year following the sale, and the specific timing and rates can vary depending on the tax year.
7. How to calculate capital gain?
To calculate capital gain, subtract the purchase price (cost basis) of an asset from its selling price. The formula is:
Capital Gain = Selling Price - Purchase Price
If the result is positive, it's a capital gain; if it's negative, it's a capital loss.
8. How much capital loss can you deduct?
The amount of capital loss you can deduct from your taxes depends on several factors, including your filing status and the amount of capital gains you have. Generally, you can offset capital losses against capital gains, and if your losses exceed your gains, you can deduct up to $3,000 ($1,500 if married filing separately) of the excess loss against your other income. Any remaining losses can be carried forward to future years to offset gains or claim additional deductions.
9. What are the capital gains tax rates this year?
Long-term capital gains can be taxed at 0%, 15%, or 20%. The rate at which your gains are taxed will depend on your income, filing status, and the type of asset. Short-term capital gains are taxed at your ordinary income tax rate.
10. How do long-term capital gains affect my tax rates?
Gains from the sale of assets you've held for longer than a year are known as long-term capital gains, and they are typically taxed at lower rates than short-term gains and ordinary income, from 0% to 20%, depending on your taxable income.
Related Information
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