Capital gains tax rates (IRS fedaral taxes)

Capital gains tax rates (IRS fedaral taxes)

Capital gains tax rates are applied to your capital gain depending on the type of investment asset and the holding period. Capital gain is taxed differently based on whether your capital gain is short-term or long-term.

Profit from assets held for a short time are deemed to be speculative and usually are taxed a bit more.

What are the capital gains tax rates?

Your capital gain tax rate depends on the following factors:

  • type of the asset you hold,
  • how much you make,
  • and also on the length for which you own the asset.

We can see in the table below that IRS applies the principle of social equality. The taxation system is implemented in a way that it is trying to redistribute wealth from the richer to the poorer. People with high income have to apply higher tax rate while people with lower income are taxed less.

Side note: Taxation is not only a source of income for the government. The government also uses the tax system as a tool to change social relationships and economic balances in an economy. The Robin Hood Index and the Lorenz Curve are the tools used to measure effects of taxes in the society and economy.

The tax table below summarizes how long term and short term capital gains are taxed:

Type of Capital Asset Holding Period Tax Rate
Short-term capital gains (STCG) One year or less Ordinary income tax rates up to 35%
Long-term capital gains (LTCG) More than one year 5% for taxpayers in the 10% and 15% tax brackets
    15% for taxpayers in the 25%, 28%, 33%, and 35% tax brackets
Collectibles One year or less STCG tax rates up to 35%
Collectibles More than one year 28%
Small Business Stock Gains (Section 1202) More than five years 28% on the gain not excluded
Real Estate Main Home One year or less STCG
  More than one year LTCG taxed at 5% or 15% after any exclusion amount

IRS also provides tables which list the dollar amount how much you owe on your capital gain.

Are there any other taxes that I have to pay on my capital gains?

In addition to imposing federal tax rules on your investment activities, your capital gains are also subject to state income taxes, and in some cases also to municipal or local taxes.

Most states do not have separate capital gains tax rates. Your gains from investments are captured in your gross adjusted income which is taxed using the same state income tax rate that applies to your regular wages.

Where and how do I report my capital gains?

Both your short-term and long-term capital gains have to be taxed and reported to the IRS. In most cases, you do not send any tax withholding to the IRS during the year for your investing and trading activities. You pay taxes in bulk when you file your federal tax return.

Capital gains have to be reported and calculated on Form 1040 Schedule D which can be downloaded from the website.

Do these tax rates apply also to my wages?

No, these rates apply to capital gains only. Your wages are taxed using another tax rates schedule. See the Tax rates schedule 2008 page or the federal tax calculator page.

What else should I know?

There is a lot to learn when it comes to taxation, but one good place to start and also end would be the 10 tips last-minute checklist for error-free tax return.

You may be interested also in the page talking about expenses: Expenses: section 179 tax deduction for your computer.

You are welcome to submit your tax questions in our taxes discussion forum, or perhaps some resources below might help you as well:


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