What Are The Long Term Capital Gains Rates?įor federal tax purposes, there are 3 long term capital gains rates: 0%, 15%, and 20%. When you sell these investments at a gain and you have satisfied the 1 year holding period, you receive the benefit of paying tax on the gain at the preferential “long-term capital gains rate”. It could be a business, investment property, stock, etc. When I say “investments” I’m using that in broad terms. Long-term capital gains on the other hand are for investments that you bought and then sold more than 12 months later. There is no special tax treatment for short-term capital gains and the 0% tax strategy does not apply. Short-term capital gains are taxed as ordinary income like your paycheck. Example, if I buy a stock today for $1,000 and I sell it three months later for $3,000, I would have a $2,000 short-term capital gain. Short-term capital gains apply to any investment that you bought and sold in less than a 12 month period. Short-term vs Long-Term Gainsīefore I get into this tax strategy, you first have to understand the difference between “short-term” and “long-term” capital gains. Most taxpayers are aware of the 15% long term capital gains tax rate but very few know about the 0% capital gains tax rate and how to properly time the sale of your invest to escape having to pay tax on the gain. Unlike ordinary income, which has a series of tax brackets that range from 10% to 37% in 2022, capital gains income is taxed at a flat rate at the federal level. Capital gains are taxed differently than the ordinary income that you received via your paycheck or pass-through income from your business. When you sell a stock, mutual fund, investment property, or a business, if you have made money on that investment, the IRS is kindly waiting for a piece of that gain in the form of capital gains tax.
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