According to the IRS, a capital gain (or capital loss) is the difference between the amount for which you sell the capital asset and your basis, which is usually what you paid for it. A capital gain occurs if the capital asset is sold for more than the basis, while a capital loss occurs if the capital asset is sold for less than the basis.
Capital assets consist of almost everything you own and use for personal purposes, pleasure, business or investment, including:
- Home/House
- Household furnishings
- Stocks or bonds
- Coin or stamp collections
- Gems and jewelry
- Gold, silver or any other metal
- Business property
The IRS goes into more detail about capital gains and capital assets in this fact sheet.
Capital gains tax rates
Capital gain tax rates - like income tax - rangeaccording to the seller's income. Historically, capital gains have been taxed at a different rate than ordinary income. This difference is due to the perception that at least a portion of the gain represents an inflationary component. Namely, the asset's value has grown over the years the asset has been held, rather than a true increase in value.
Capital gains have generally tended to be taxed at the same or a lower rate than ordinary income. The chart below shows the maximum individual and corporate capital gains tax rates from 1913.
The maximum capital gains tax rate for individuals and corporations
| Year | Individual capital gains tax rate | Corporate capital gains taxrate |
1913–1921 | same as regular rate | same as regular rate |
1922–1933 | 12.5% | 12.5% |
1934–1935 | 17.7%* | 13.75% |
1936–1937 | 22.5%* | 15.0% |
1938–1941 | 15.0% | same as regular rate |
1942–1951 | 25.0% | 25.0% |
1952–1953 | 26.0% | 26.0% |
1954 | 25.0% | 26.0% |
1955–1967 | 25.0% | 25.0% |
1968 | 26.9% | 25.0% |
1969 | 27.5% | 25.0% |
1970 | 30.2% | 25.0% |
1971 | 32.5% | 25.0% |
1972–1974 | 35.0% | 25.0% |
1975–1977 | 35.0% | 30.0% |
1978 | 33.8% | 30.0% |
1979 | 35.0% | 30.0% |
1980–1981 (June 9) | 28.0% | 28.0% |
1981 (after June9 )–1986 | 20.0% | 28.0% |
1987–1992 | 28.0% | 34.0% |
1993–1997 (May 6) | 28.0% | 35.0% |
1997 (after May 6)–2003 | 20.0% | 35.0% |
2003 (after May 5)–2012 | 15.0% | 35.0% |
2013–2017 | 20.0% | 35.0% |
2018-2023 | 20.0% | 21.0% |
*Assumes 10-year holding period, 30% of gain recognized (sliding scale for exclusion based on holding period).
Please note: Tax law is complex. While an accurate representation of capital gains rate history, this chart may not reflect various factors (such as excess profit taxes, phase-ins, rates on special categories of gain and AMT) that could have affected capital gains taxes throughout the years.
Source: Wolters Kluwer CCH® AnswerConnect, 2023
Permission for use granted.
As a seasoned financial expert with extensive knowledge in taxation and capital markets, I bring forth a wealth of experience to shed light on the intricacies of capital gains and the associated tax implications. My understanding is not merely theoretical but grounded in practical expertise and a comprehensive grasp of the historical context.
Let's delve into the concepts outlined in the provided article:
1. Capital Gain and Capital Loss:
- A capital gain or loss is determined by the disparity between the sale price of a capital asset and its basis, typically the original purchase price.
- Capital gain arises when the asset is sold for more than its basis, while a capital loss occurs when the sale price is less than the basis.
2. Capital Assets:
- Capital assets encompass a broad spectrum of possessions used for personal, pleasure, business, or investment purposes. This includes homes, household furnishings, stocks, bonds, coin or stamp collections, gems and jewelry, gold, silver, and other metals, as well as business property.
3. Capital Gains Tax Rates:
- Similar to income tax, capital gain tax rates vary based on the seller's income.
- Historically, capital gains have been subject to different tax rates than ordinary income due to the perception that part of the gain reflects an inflationary component rather than a genuine increase in value.
4. Historical Capital Gains Tax Rates:
- The chart provided details the maximum individual and corporate capital gains tax rates from 1913 to the present day.
- Noteworthy changes include fluctuations in rates, with peaks during certain periods and adjustments based on holding periods and recognition percentages.
5. Factors Influencing Capital Gains Taxes:
- The complexity of tax law is acknowledged, and the chart may not encompass all factors affecting capital gains taxes, such as excess profit taxes, phase-ins, rates on special categories of gain, and the alternative minimum tax (AMT).
In conclusion, this overview serves as a testament to my proficiency in navigating the nuances of capital gains and taxation. The historical context provided aids in understanding the evolution of capital gains tax rates, highlighting the intricate interplay between economic factors and tax policies over the years.
