A capital gains tax is a tax that investors pay on the profit from the sale of an asset. How the capital gain is taxed depends on filing status, taxable income and how long the asset was owned before selling.
The capital gains tax rate is 0%, 15% or 20% on most assets held for longer than a year. Capital gains taxes on assets held for a year or less correspond to ordinary income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% or 37%.
Capital gains taxes apply to the sale of capital assets for profit. This can include investments such as stocks, bonds, cryptocurrency, real estate, cars, boats and other tangible items.
How capital gains taxes work
Profit you make from the sale of an asset is considered taxable income. The holding period — the time between when you bought the asset and when you sold it — determines how the profit gets classified for tax purposes. Profits made on assets held for a year or less before sale are considered short-term capital gains. Profits made on assets held for longer than a year are long-term capital gains.
Capital gains taxes are progressive, similar to income taxes. Short-term capital gains are taxed according to the relevant federal tax rate. Long-term capital gains are subject to 0%, 15% or 20%, depending on your taxable income. According to the IRS, most people pay no more than 15% on their long-term capital gains.
Only assets that have been "realized," or sold for profit, are subject to capital gains tax. This means that you won't incur taxes on any unsold, or "unrealized," investments that are, say, sitting in a brokerage account untouched.
» Selling a home? Taxes on the sale of a home can work differently.
What is short-term capital gains tax?
Short-term capital gains taxes are a tax on profits from the sale of an asset held for one year or less. Short-term capital gains are added to income and taxed at your ordinary income tax rate, or your tax bracket. If you need a refresher on what tax bracket you’re in, review this rundown on federal tax brackets.
What is long-term capital gains tax?
Long-term capital gains taxes are a tax on profits from the sale of an asset held for more than a year. The long-term capital gains tax rate is either 0%, 15% or 20%, depending on your taxable income and filing status. Long-term capital gains tax rates are generally lower than short-term capital gains tax rates.
» Ready to crunch the numbers? Our capital gains tax calculator can help you estimate your gains.
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The 2022 capital gains tax rates apply to assets sold for a profit in 2022. Capital gains are reported on Schedule D, which is submitted with your federal tax return (Form 1040) by the April 2023 tax-filing deadline or by Oct. 16, 2023, with an extension.
The table below provides an overview of the long-term capital gains tax rates based on taxable income.
Tax-filing status
0% tax rate
15% tax rate
20% 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.
Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
Capital gains tax calculator
» Looking for a way to defer capital gains taxes? Putting money in an IRA or a 401(k) could help postpone or even avoid future capital gains tax bills.
Capital gains tax rates 2023
The 2023 capital gains tax rates apply to assets sold for a profit in 2023. Capital gains are reported on Schedule D, which should be submitted with your federal tax return (Form 1040) in April 2024, or October 2024, with an extension.
The table below provides an overview of the long-term capital gains tax rates that will apply to long-term gains based on taxable income.
Tax-filing status
0% tax rate
15% tax rate
20% 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.
Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
Capital gains tax rules and considerations
Here are some other notable rules and exceptions that come into play.
Collectible assets
The capital gains tax rates in the tables above apply to most assets, but there are some noteworthy exceptions. Long-term capital gains on so-called “collectible assets” can be taxed at a maximum of 28%. This includes items such as coins, precious metals, antiques and fine art. Short-term gains on such assets are taxed at the ordinary income tax rate.
» Traded cryptocurrency last year? Other rules for crypto taxes
The net investment income tax
Some investors may owe an additional 3.8% of either your net investment income or the amount by which your modified adjusted gross income exceeds the amounts listed below — whichever is smaller.
The income thresholds that might make investors subject to the net investment income tax are:
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.
» Having trouble deciding whether and when to sell? A qualified financial advisor can help you understand your options.
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How to avoid, reduce or minimize capital gains taxes
1. Hold on
Whenever possible, hold an asset for a year or longer so you can qualify for the long-term capital gains tax rate, since it's significantly lower than the short-term capital gains rate for most assets. Our capital gains tax calculator shows how much that could save.
2. Use tax-advantaged accounts
These include 401(k) plans, individual retirement accounts and 529 college savings accounts, in which the investments grow tax-free or tax-deferred. That means you don’t have to pay capital gains tax if you sell investments within these accounts. Roth IRAs and 529 accounts in particular have big tax advantages. Qualified distributions from those are tax-free; in other words, you don’t pay any taxes on investment earnings. With traditional IRAs and 401(k)s, you’ll pay taxes when you take distributions from the accounts in retirement.
» Learn more here about taxes on your retirement accounts.
3. Rebalance with dividends
Rather than reinvest dividends in the investment that paid them, rebalance by putting that money into your underperforming investments. Typically, you'd rebalance by selling securities that are doing well and putting that money into those that are underperforming. But using dividends to invest in underperforming assets will allow you to avoid selling strong performers — and thus avoid capital gains that would come from that sale.
» Learn more about the dividend tax rate and how it works.
4. Exclude home sales
To qualify, you must have owned your home and used it as your main residence for at least two years in the five-year period before you sell it. You also must not have excluded another home from capital gains in the two-year period before the home sale. If you meet those rules, 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.
» Learn more here about how capital gains on home sales work.
5. Carry losses over
The IRS taxes your net capital gain, which is simply your total capital gains (investments sold for a profit) minus your total capital losses (investments sold at a loss). This means that you can use investment capital losses to offset gains. For example, if you sold a stock for a $10,000 profit this year and sold another at a $4,000 loss, you’ll be taxed on capital gains of $6,000.
If your net capital loss exceeds your net capital gains, you can offset your ordinary income by up to $3,000 ($1,500 for those married filing separately). Any additional losses can be carried forward to future years to offset capital gains or up to $3,000 of ordinary income per year.
6. Consider a robo-advisor
Robo-advisors manage your investments for you automatically, and they often employ smart tax strategies, including tax-loss harvesting, which involves selling losing investments to offset the gains from winners.»Ready to get started? See our picks for best robo-advisors
Frequently asked questions
What is the short-term capital gains tax?
You'll pay short-term capital gains taxes on the profits you earn from an asset you sell after holding it for a year or less. The short-term capital gains tax is the same as your ordinary income tax rate.
What is the long-term capital gains tax?
The capital gains tax you pay on long-term gains — profits you earn when selling an asset you've held for more than a year — is either 0%, 15% or 20%, depending on your taxable income.
How do I avoid capital gains taxes?
One way to avoid capital gains taxes on your investments is to hold them inside a tax-advantaged account, such as a 401(k) or IRA. Investment earnings within these accounts aren't taxed until you take distributions in retirement (and in the case of a Roth IRA, the investment earnings aren't taxed at all, provided you follow the Roth IRA rules.
Otherwise, you can minimize — but not avoid — capital gains taxes by holding your investments for over a year before selling at a profit.
Do I have to pay capital gains taxes on cryptocurrency?
Yes, capital gains taxes apply to all capital assets, including cryptocurrency. Other examples of capital assets that may incur capital gains taxes when sold are stocks, mutual funds, real estate and cars.
Long-term capital gains tax rates for the 2023 tax year
In 2023, individual filers won't pay any capital gains tax if their total taxable income is $44,625 or less. The rate jumps to 15 percent on capital gains, if their income is $44,626 to $492,300. Above that income level the rate climbs to 20 percent.
The 2023 tax year—the return you'll file in 2024—will have the same seven federal income tax brackets as the 2022-2023 season: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your filing status and taxable income, including wages, will determine the bracket you're in.
What are the AMT tax rates? Taxpayers who have incomes that exceed the AMT exemption may be subject to the alternative minimum tax. In 2022 and 2023, AMT rates are 26% or 28%.
Take the selling price and subtract the initial purchase price. The result is the gain or loss. Take the gain or loss from the investment and divide it by the original amount or purchase price of the investment. Finally, multiply the result by 100 to arrive at the percentage change in the investment.
The capital gains tax rate is 0%, 15% or 20% on most assets held for longer than a year. Capital gains taxes on assets held for a year or less correspond to ordinary income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% or 37%.
Though capital gains can be taxed at a different rate, they are still included in your AGI and can affect the tax bracket you're in and your ability to participate in some income-based investments.
The IRS considers an individual to be 65 on the day before their 65th birthday. The standard deduction for those over age 65 in 2023 (filing tax year 2022) is $14,700 for singles, $27,300 for married filing jointly if only one partner is over 65 (or $28,700 if both are), and $21,150 for head of household.
Basically, if you're 65 or older, you have to file a tax return in 2022 if your gross income is $14,700 or higher. If you're married filing jointly and both 65 or older, that amount is $28,700. If you're married filing jointly and only one of you is 65 or older, that amount is $27,300.
If you are age 65 or older, your standard deduction increases by $1,700 if you file as single or head of household. If you are legally blind, your standard deduction increases by $1,700 as well. If you are married filing jointly and you OR your spouse is 65 or older, your standard deduction increases by $1,350.
What are the tax brackets for 2023? The U.S. taxes income at progressively higher rates as you earn more. Those rates—ranging from 10% to 37%—will remain the same in 2023. What's changing is the amount of income that gets taxed at each rate.
Here's how it works: Taxpayers can claim a full capital gains tax exemption for their principal place of residence (PPOR). They also can claim this exemption for up to six years if they moved out of their PPOR and then rented it out.
While capital gains do not affect your income or income tax bracket, those gains can impact your Adjusted Gross Income. The IRS explains that AGI consists of “… gross income minus adjustments to income.
The IRS allows no specific tax exemptions for senior citizens, either when it comes to income or capital gains. The closest you can come is a back-end tax-advantaged retirement account like a Roth IRA which allows you to withdraw money without paying taxes.
For a single filer in 2021, the capital gains tax rate is 0% for income up to $40,400, 15% for income above $40,400 but below $445,850, and 20% for any income above $445,850. For individuals earning $250,000 or more if married and $200,000 or more for single filers, an additional 3.8% tax is levied on capital gains.
For the 2023 tax season, the 0% rate on long-term capital gains – any asset held for longer than a year – can be applied to taxable income of $41,675 or less for single filers and $83,350 or less for married couples filing jointly.
Yes, capital gains are part of the MAGI calculation. For many taxpayers, the MAGI is similar to the AGI (adjusted gross income), but it can be higher, depending on your circ*mstances.
If you're 65 or older, your additional standard deduction increases from $1,400 to $1,500 if you're married and from $1,750 to $1,850 if you're single or the head of household. Marginal tax rates are the same in 2023 as in 2022. The lowest rate is still 10 percent and the highest is still 37 percent.
The social security wage base limit is $160,200. The Medicare tax rate is 1.45% each for the employee and employer, unchanged from 2022. There is no wage base limit for Medicare tax.
The standard deduction for seniors this year is actually the 2022 amount, filed by April 2023. For the 2022 tax year, seniors filing single or married filing separately get a standard deduction of $14,700.For those who are married and filing jointly, the standard deduction for 65 and older is $25,900.
To acquire the full amount, you need to maximize your working life and begin collecting your check until age 70. Another way to maximize your check is by asking for a raise every two or three years. Moving companies throughout your career is another way to prove your worth, and generate more money.
Social Security benefits may or may not be taxed after 62, depending in large part on other income earned. Those only receiving Social Security benefits do not have to pay federal income taxes.
Some red flags for an audit are round numbers, missing income, excessive deductions or credits, unreported income and refundable tax credits. The best defense is proper documentation and receipts, tax experts say.
Yes, Social Security is taxed federally after the age of 70. If you get a Social Security check, it will always be part of your taxable income, regardless of your age. There is some variation at the state level, though, so make sure to check the laws for the state where you live.
Single people age 65 or older can claim an additional $1,850 on their standard deduction while those in married couples can claim an additional $1,500 for each spouse age 65 or older.
Inflation last year reached its highest level in the United States since 1981. As a result, the IRS announced the largest inflation adjustment for individual taxes in decades: 7.1 percent for tax year 2023.
Some of you have to pay federal income taxes on your Social Security benefits. This usually happens only if you have other substantial income in addition to your benefits (such as wages, self-employment, interest, dividends and other taxable income that must be reported on your tax return).
Long-term capital gains cannot push you into a higher income tax bracket. Only short-term capital gains can accomplish that, because those gains are taxed as ordinary income. So any short-term capital gains are added to your income for the year.
NOTE: The 7.65% tax rate is the combined rate for Social Security and Medicare. The Social Security portion (OASDI) is 6.20% on earnings up to the applicable taxable maximum amount (see below). The Medicare portion (HI) is 1.45% on all earnings.
How do I avoid the capital gains tax on real estate? If you have owned and occupied your property for at least 2 of the last 5 years, you can avoid paying capital gains taxes on the first $250,000 for single-filers and $500,000 for married people filing jointly.
This means that you would be able to sell the property within the six-year period and be exempt from paying capital gains tax just as you would if you sold the house considered your main residence. The six-year absence rule exists because there are many reasons why you may not be living in your property for some time.
Long-term capital gains tax rates for the 2023 tax year
In 2023, individual filers won't pay any capital gains tax if their total taxable income is $44,625 or less. The rate jumps to 15 percent on capital gains, if their income is $44,626 to $492,300. Above that income level the rate climbs to 20 percent.
Key Takeaways. You can sell your primary residence and be exempt from capital gains taxes on the first $250,000 if you are single and $500,000 if married filing jointly.
The 2023 tax year—the return you'll file in 2024—will have the same seven federal income tax brackets as the 2022-2023 season: 10%, 12%, 22%, 24%, 32%, 35% and 37%. Your filing status and taxable income, including wages, will determine the bracket you're in.
Specifically, beginning in 2026, the rates will be 10, 15, 25, 28, 33, 35, and 39.6 percent. A separate rate schedule specified in the tax code applies to taxable income in the form of qualified dividends and most long-term capital gains, with a maximum statutory rate of 20 percent.
Key Takeaways. Qualified dividends must meet special requirements issued by the IRS. The maximum tax rate for qualified dividends is 20%, with a few exceptions for real estate, art, or small business stock. Ordinary dividends are taxed at income tax rates, which as of the 2023 tax year, maxes out at 37%.
Key Takeaways. You can sell your primary residence and be exempt from capital gains taxes on the first $250,000 if you are single and $500,000 if married filing jointly.
Ordinary income is calculated separately and taxed at ordinary income rates. More long-term capital gains may push your long-term capital gains into a higher tax bracket (0%, 15%, or 20%), but they will not affect your ordinary income tax bracket.
When selling a primary residence property, capital gains from the sale can be deducted from the seller's owed taxes if the seller has lived in the property themselves for at least 2 of the previous 5 years leading up to the sale. That is the 2-out-of-5-years rule, in short.
Outside of any tax-sheltered investments and the dividend allowance, the dividend tax rates are: 8.75% for basic rate taxpayers. 33.75% for higher rate taxpayers. 39.35% for additional rate taxpayers.
To avoid paying capital gains taxes (and any depreciation recapture), you can reinvest in a "like-kind" asset with a sales price of at least $500,000. The IRS allows virtually any commercial real estate property to qualify as 'like-kind” as long as you hold it for investment purposes.
Long-term capital gains tax rates are often lower than ordinary income tax rates. Capital gains are taxed at rates of zero, 15 and 20 percent, depending on the investor's total taxable income. That compares to the highest ordinary tax rate of 37 percent for 2022. The capital gains tax rates are highly advantageous.
Introduction: My name is Pres. Carey Rath, I am a faithful, funny, vast, joyous, lively, brave, glamorous person who loves writing and wants to share my knowledge and understanding with you.
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