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Contents
- 1 Federal capital gains tax
- 1.1 Current rates
- 1.2 History
- 2 Capital gains tax rates by state
- 3 Recent news
- 4 See also
- 5 External links
- 5.1 Additional reading
- 6 Footnotes
A capital gains tax is a tax levied on the profit gleaned from the sale of a capital asset. Capital assets include corporate stocks, businesses, land parcels, homes, personal items and other such assets. When someone sells a capital asset, the difference between the asset's basis, or original cost, and its selling price is the capital gain (if a profit is made) or capital loss. Capital gains are taxable at both the federal level and the state level.[1][2][3]
At the federal level, capital gains are taxed at a lower rate than personal income. Short-term gains (i.e., gains on assets held for one year or less) are taxed at a higher rate than long-term gains (i.e., gains on assets held for more than one year). By contrast, most states tax capital gains according to the same rates as other personal income.[1][2][3]
Proponents of capital gains taxes claim that these taxes can generate significant revenues while impacting only a small subset of high-income taxpayers. Opponents, meanwhile, contend that capital gains taxes discourage savings and investment, thereby hindering economic development.[4][5]
Federal capital gains tax
Current rates
An individual's capital gains tax liability is contingent on his or her personal income tax liability. The tables below summarize both personal income tax and capital gains tax rates for single individuals and married couples filing jointly in 2017.[1][6]
| Federal personal income and capital gains tax rates, 2017 (single filing status) | |||
|---|---|---|---|
| Taxable income | Personal income tax rate | Capital gains tax rate | |
| Low | High | ||
| $0 | $9,325 | 10% | 0% |
| $9,325 | $37,950 | 15% | 0% |
| $37,950 | $91,900 | 25% | 15% |
| $91,900 | $191,650 | 28% | 15% |
| $191,650 | $416,700 | 33% | 15% |
| $416,700 | $418,400 | 35% | 15% |
| $418,400 and up | 39.60% | 20% | |
| Note: For complete notes and annotations, please see the source below. Source: Charles Schwab, "Taxes: What's New for 2017?" January 4, 2017 | |||
| Federal personal income and capital gains tax rates, 2017 (married filing jointly) | |||
|---|---|---|---|
| Taxable income | Personal income tax rate | Capital gains tax rate | |
| Low | High | ||
| $0 | $18,650 | 10% | 0% |
| $18,650 | $75,900 | 15% | 0% |
| $75,900 | $153,100 | 25% | 15% |
| $153,100 | $233,350 | 28% | 15% |
| $233,350 | $416,700 | 33% | 15% |
| $416,700 | $470,700 | 35% | 15% |
| $470,700 and up | 39.60% | 20% | |
| Note: For complete notes and annotations, please see the source below. Source: Charles Schwab, "Taxes: What's New for 2017?" January 4, 2017 | |||
History
According to the Urban Institute, capital gains were taxed at the same rates as regular income from 1913 to 1921. Since then, capital gains have been taxed at different rates than ordinary income, though the calculus involved in determining rates has changed considerably. The table below summarizes capital gains tax rates and revenues for 1954 through 2009. From 1954 through the late 1970s, uppermost long-term rates increased from 20 percent to nearly 40 percent. These rates peaked at 39.875 percent from 1976 through 1978. Beginning in 1997, uppermost rates steadily declined from 29.19 percent to a low of 15.35 percent in 2009.[7][8]
| Historical capital gains tax rates, 1954-2014 (dollars in millions) | |||||
|---|---|---|---|---|---|
| Year | Total realized capital gains | Taxes paid on capital gains | Average effective tax rate | Realized gains as a percent of GDP | Maximum tax rate on long-term gains |
| 1954 | $7,157 | $1,010 | 14.1% | 1.88% | 25% |
| 1955 | $9,881 | $1,465 | 14.8% | 2.38% | 25% |
| 1956 | $9,683 | $1,402 | 14.5% | 2.21% | 25% |
| 1957 | $8,110 | $1,115 | 13.7% | 1.76% | 25% |
| 1958 | $9,440 | $1,309 | 13.9% | 2.02% | 25% |
| 1959 | $13,137 | $1,920 | 14.6% | 2.59% | 25% |
| 1960 | $11,747 | $1,687 | 14.4% | 2.23% | 25% |
| 1961 | $16,001 | $2,481 | 15.5% | 2.94% | 25% |
| 1962 | $13,451 | $1,954 | 14.5% | 2.3% | 25% |
| 1963 | $14,579 | $2,143 | 14.7% | 2.36% | 25% |
| 1964 | $17,431 | $2,482 | 14.2% | 2.63% | 25% |
| 1965 | $21,484 | $3,003 | 14% | 2.99% | 25% |
| 1966 | $21,348 | $2,905 | 13.6% | 2.71% | 25% |
| 1967 | $27,535 | $4,112 | 14.9% | 3.31% | 25% |
| 1968 | $35,607 | $5,943 | 16.7% | 3.91% | 26.9% |
| 1969 | $31,439 | $5,275 | 16.8% | 3.19% | 27.5% |
| 1970 | $20,848 | $3,161 | 15.2% | 2.01% | 32.21% |
| 1971 | $28,341 | $4,350 | 15.3% | 2.52% | 34.25% |
| 1972 | $35,869 | $5,708 | 15.9% | 2.9% | 36.5% |
| 1973 | $35,757 | $5,366 | 15% | 2.59% | 36.5% |
| 1974 | $30,217 | $4,253 | 14.1% | 2.02% | 36.5% |
| 1975 | $30,903 | $4,534 | 14.7% | 1.89% | 36.5% |
| 1976 | $39,492 | $6,621 | 16.8% | 2.16% | 39.875% |
| 1977 | $45,338 | $8,232 | 18.2% | 2.23% | 39.875% |
| 1978 | $50,526 | $9,104 | 18% | 2.2% | 39.875% / 33.85% |
| 1979 | $73,443 | $11,753 | 16% | 2.87% | 28% |
| 1980 | $74,132 | $12,459 | 16.8% | 2.66% | 28% |
| 1981 | $80,938 | $12,852 | 15.9% | 2.59% | 28.00% / 20.00% |
| 1982 | $90,153 | $12,900 | 14.3% | 2.77% | 20% |
| 1983 | $122,773 | $18,700 | 15.2% | 3.47% | 20% |
| 1984 | $140,500 | $21,453 | 15.3% | 3.57% | 20% |
| 1985 | $171,985 | $26,460 | 15.4% | 4.08% | 20% |
| 1986 | $327,725 | $52,914 | 16.1% | 7.35% | 20% |
| 1987 | $148,449 | $33,714 | 22.7% | 3.13% | 28% |
| 1988 | $162,592 | $38,866 | 23.9% | 3.19% | 28% |
| 1989 | $154,040 | $35,258 | 22.9% | 2.81% | 28% |
| 1990 | $123,783 | $27,829 | 22.5% | 2.13% | 28% |
| 1991 | $111,592 | $24,903 | 22.3% | 1.86% | 28.93% |
| 1992 | $126,692 | $28,983 | 22.9% | 2% | 28.93% |
| 1993 | $152,259 | $36,112 | 23.7% | 2.28% | 29.19% |
| 1994 | $152,727 | $36,243 | 23.7% | 2.16% | 29.19% |
| 1995 | $180,130 | $44,254 | 24.6% | 2.43% | 29.19% |
| 1996 | $260,696 | $66,396 | 25.5% | 3.33% | 29.19% |
| 1997 | $364,829 | $79,305 | 21.7% | 4.38% | 29.19% / 21.19% |
| 1998 | $455,223 | $89,069 | 19.6% | 5.18% | 21.19% |
| 1999 | $552,608 | $111,821 | 20.2% | 5.91% | 21.19% |
| 2000 | $644,285 | $127,297 | 19.8% | 6.47% | 21.19% |
| 2001 | $349,441 | $65,668 | 18.8% | 3.4% | 21.17% |
| 2002 | $268,615 | $49,122 | 18.3% | 2.52% | 21.16% |
| 2003 | $323,306 | $51,340 | 15.9% | 2.9% | 21.05% / 16.05% |
| 2004 | $499,154 | $73,213 | 14.7% | 4.21% | 16.05% |
| 2005 | $690,152 | $102,174 | 14.8% | 5.47% | 16.05% |
| 2006 | $798,214 | $117,793 | 14.8% | 5.97% | 15.7% |
| 2007 | $924,164 | $137,141 | 14.8% | 6.59% | 15.7% |
| 2008 | $497,841 | $68,791 | 13.8% | 3.48% | 15.35% |
| 2009 | $263,460 | $36,686 | 13.9% | 1.89% | 15.35% |
| 2010 | $394,230 | $55,017 | 14.0% | 2.63% | 15.00% |
| 2011 | $404,344 | $56,682 | 14.0% | 2.61% | 15.00% |
| 2012 | $647,073 | $91,178 | 14.1% | 4.01% | 15.00% |
| 2013 | $510,530 | $98,798 | 19.4% | 3.06% | 25.10% |
| 2014 | $716,162 | $139,127 | 19.4% | 4.02% | 25.10% |
| Source: Tax Policy Center, "Historical Capital Gains and Taxes," November 20, 2012 | |||||
Capital gains tax rates by state
In 2015, the Tax Foundation released a report detailing the uppermost capital gains tax liabilities by state. As the Tax Foundation notes, most states do not levy a separate capital gains tax. Rather, the states tax capital gains according to the same rates as personal income. The table below summarizes uppermost capital gains tax liabilities by state in 2015. California's uppermost rate ranked highest in the country at 13.3 percent. The combined rate (including the state and federal uppermost rates, as well as a 3.8 percent surtax) totaled 33 percent. By contrast, nine states that do not levy a personal income or capital gains tax tied for the lowest combined uppermost rate in the nation at 25 percent.[2]
| Uppermost capital gains tax rates by state, 2015 | ||
|---|---|---|
| State | State uppermost rate | Combined uppermost rate |
| Alabama | 5% | 27.4% |
| Alaska | 0% | 25% |
| Arizona | 4.5% | 27.7% |
| Arkansas | 7% | 27.9% |
| California | 13.3% | 33% |
| Colorado | 4.6% | 27.8% |
| Connecticut | 6.7% | 29% |
| Delaware | 6.6% | 29% |
| Florida | 0% | 25% |
| Georgia | 6% | 28.6% |
| Hawaii | 7.3% | 29.4% |
| Idaho | 7.4% | 29.4% |
| Illinois | 5% | 28% |
| Indiana | 3.4% | 27.8% |
| Iowa | 9% | 29.6% |
| Kansas | 4.8% | 27.9% |
| Kentucky | 6% | 28.6% |
| Louisiana | 6% | 27.9% |
| Maine | 8% | 29.8% |
| Maryland | 5.8% | 30.3% |
| Massachusetts | 5.2% | 28.1% |
| Michigan | 4.4% | 27.8% |
| Minnesota | 9.9% | 30.9% |
| Mississippi | 5% | 28% |
| Missouri | 6% | 28.6% |
| Montana | 6.9% | 27.9% |
| Nebraska | 6.8% | 29.1% |
| Nevada | 0% | 25% |
| New Hampshire | 0% | 25% |
| New Jersey | 9% | 30.4% |
| New Mexico | 4.9% | 26.5% |
| New York | 8.8% | 31.5% |
| North Carolina | 5.8% | 28.5% |
| North Dakota | 3.2% | 26.3% |
| Ohio | 5.4% | 28.9% |
| Oklahoma | 5.3% | 28.2% |
| Oregon | 9.9% | 31% |
| Pennsylvania | 3.1% | 26.8% |
| Rhode Island | 6% | 28.6% |
| South Carolina | 7% | 27.3% |
| South Dakota | 0% | 25% |
| Tennessee | 0% | 25% |
| Texas | 0% | 25% |
| Utah | 5% | 28% |
| Vermont | 9% | 30.4% |
| Virginia | 5.8% | 28.5% |
| Washington | 0% | 25% |
| West Virginia | 6.5% | 28.9% |
| Wisconsin | 7.7% | 28.2% |
| Wyoming | 0% | 25% |
| Note: For complete notes and annotations, please see the source below. Source: Tax Foundation, "The High Burden of State and Federal Capital Gains Tax Rates," accessed October 26, 2017 | ||
Recent news
This section links to a Google news search for the term "Capital + gains + tax"
See also
External links
Additional reading
- Forbes, "Can A Financial Assets Tax Be A Pro-Growth Replacement For The Capital Gains Tax?" May 23, 2014
- Tax Foundation, "The High Burden of State and Federal Capital Gains Tax Rates," February 11, 2014
- Tax Policy Center, "Capital Gains and Dividends: How are capital gains taxed?" June 22, 2011
Footnotes
- ↑ 1.0 1.1 1.2 Internal Revenue Service, "Topic 409 - Capital Gains and Losses," August 19, 2014
- ↑ 2.0 2.1 2.2 Tax Foundation, "The High Burden of State and Federal Capital Gains Tax Rates," accessed September 29, 2015 Cite error: Invalid
<ref>tag; name "TFcapital" defined multiple times with different content - ↑ 3.0 3.1 Tax Policy Center, "Capital Gains and Dividends: How are capital gains taxed?" June 22, 2011
- ↑ Washington State Budget and Policy Center, "A Capital Reform: Using Capital Gains to Fuel Job Creation and Economic Prosperity in Washington state," November 3, 2011
- ↑ Tax Foundation, "Capital Gains and Dividends Taxes," accessed October 22, 2014
- ↑ Charles Schwab, "Taxes: What's New for 2017?" January 4, 2017
- ↑ Urban Institute, "Capital Gains Taxation," October 1, 1999
- ↑ Tax Policy Center, "Historical Capital Gains and Taxes," November 2, 2017
As a tax policy expert with a deep understanding of both federal and state tax systems, I can confidently delve into the complex topic of capital gains tax. My expertise is rooted in comprehensive research, academic knowledge, and practical experience in the field of taxation. Allow me to provide you with a detailed breakdown of the concepts mentioned in the article:
-
Capital Gains Tax Overview:
- A capital gains tax is a levy imposed on the profit gained from the sale of a capital asset. Capital assets encompass a wide range, including corporate stocks, businesses, land parcels, homes, and personal items.
- The tax is based on the difference between the asset's basis (original cost) and its selling price, resulting in either a capital gain (if a profit is made) or a capital loss.
-
Taxation at Federal Level:
- Capital gains are subject to taxation both at the federal and state levels.
- At the federal level, capital gains are taxed at a lower rate than personal income.
- Short-term gains (held for one year or less) are taxed at a higher rate than long-term gains (held for more than one year).
-
Proponents and Opponents Perspectives:
- Advocates argue that capital gains taxes generate significant revenues while affecting only a small subset of high-income taxpayers.
- Opponents contend that such taxes discourage savings and investment, impeding economic development.
-
Federal Capital Gains Tax Rates (2017):
- The article provides detailed tables illustrating federal personal income and capital gains tax rates for both single individuals and married couples filing jointly in 2017.
-
Historical Perspective:
- The Urban Institute notes that from 1913 to 1921, capital gains were taxed at the same rates as regular income.
- The article presents historical data on capital gains tax rates and revenues from 1954 to 2009, showing fluctuations and changes in the maximum tax rates.
-
State Capital Gains Tax Rates (2015):
- A report by the Tax Foundation in 2015 details the highest capital gains tax liabilities by state.
- Most states do not have a separate capital gains tax; instead, they tax capital gains according to the same rates as personal income.
-
Recent News and External Links:
- The article includes a section linking to recent news on capital gains tax policy.
- External links to authoritative sources such as the Tax Policy Center, Federation of Tax Administrators, and Tax Foundation provide additional reading for those interested in a more in-depth understanding.
This comprehensive overview should serve as a valuable resource for anyone seeking to comprehend the intricacies of capital gains tax, its historical context, and its implications at both federal and state levels.
