When you sell capital assets like mutual funds or stocks there’s a tax implication. But knowing what tax rate applies depends on several factors. In this post, we’ll outline capital gains taxes and how to calculate them.
What is capital gains tax?
The definition is pretty simple: It’s the difference between what you paid for a capital asset (like bonds, mutual funds, real property, or stocks) and what you sold it for. If you sell your asset for more than you bought it, you’ll have a capital gain – If the opposite is true and you sell the asset for less than you bought it, you’ll have a capital loss.
Capital gains tax is the taxation of capital assets. The taxation is classified by the length in which you own the asset, which we’ll describe in detail below!
How to calculate capital gains tax — step-by-step
The basics of a capital gain calculation is to find the difference between what you paid for your asset or property and what you sold it for. Let’s take it step-by-step and find out the answer to “How does capital gains tax work?”
Capital gain calculation in four steps
Determine your basis. This is generally the purchase price plus any commissions or fees paid. Basis may also be increased by reinvested dividends on stocks and other factors.
Determine your realized amount. This is the sale price minus any commissions or fees paid.
Subtract your basis (what you paid) from the realized amount (how much you sold it for) to determine the difference.
If you sold your assets for more than you paid, you have a capital gain.
If you sold your assets for less than you paid, you have a capital loss. Learn how you can use capital losses to offset capital gains tax.
Review the descriptions in the section below to know which tax rate may apply to your capital gains.
Looking for a capital gains tax calculator? When you file with H&R Block Premium, there’s a capital gains tax calculator built right in. Once you’ve added the information about your asset, you’ll see a results page that outlines your total gain or loss. Of course, you could also get help from our tax pros when you file.
At this point, you may know that you have a gain (or a loss). But you may also be wondering how much is capital gains tax? Well, that will depend on if it’s a short- or long-term capital gain. Here, we’ll outline the differences.
Short-term capital gain tax rates
Short-term capital gains are gains apply to assets or property you held for one year or less. They are subject to ordinary income tax rates meaning they’re taxed federally at either 10%, 12%, 22%, 24%, 32%, 35%, or 37%.
Long-term capital gains tax rate
Long-term capital gains apply to assets that you held for over one year and are taxed differently. The federal tax rate for your long-term capital gains depends on where your income falls in relation to three cut-off points.
Capital gains tax rate – 2021 thresholds
Rates
Single
Married Filing Separately
Married Filing Jointly
Head of Household
0%
Up to $40,400
Up to $40,400
Up to $80,800
Up to $54,100
15%
$40,401 to $445,850
$40,401 to $250,800
$80,801 to $501,600
$54,101 to $473,750
20%
Above $445,850
Above $250,800
Above $501,600
Above $473,750
Capital gains tax rate – 2022 thresholds
Rate
Single
Married Filing Separately
Married Filing Jointly
Head of Household
0%
Up to $41,675
Up to $41,675
Up to $83,350
Up to $55,800
15%
$41,675 to $459,750
$41,675 to $258,600
$83,350 to $517,200
$55,800 to $488,500
20%
Over $459,750
Over $258,600
Over $517,200
Over $488,500
Note: Gains on the sale of collectibles (rental real estate income, collectibles, antiques, works of art, and stamps) are taxed at a maximum rate of 28%.
More help with capital gains calculations and tax rates
In most cases, you’ll use your purchase and sale information to complete Form 8949 so you can report your gains and losses on Schedule D.
If you still have looming questions like, “How much is capital gains tax for a specific capital asset I sold this year?”, let H&R Block help. Our tax pros know the ins and outs of taxes and are dedicated to making sure you’ve filed with accuracy, so you get the biggest refund possible – guaranteed.
This is the sale price minus any commissions or fees paid. Subtract your basis (what you paid) from the realized amount (how much you sold it for) to determine the difference. If you sold your assets for more than you paid, you have a capital gain.
This is the sale price minus any commissions or fees paid. Subtract your basis (what you paid) from the realized amount (how much you sold it for) to determine the difference. If you sold your assets for more than you paid, you have a capital gain.
Capital gains are the profit from selling an asset, such as a stock, mutual fund, or ETF. You may owe capital gains taxes when you realize capital gains by selling an asset. Taxes are determined by your income level and how long you held the investment before selling.
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.
This means right now, the law doesn't allow for any exemptions based on your age. Whether you're 65 or 95, seniors must pay capital gains tax where it's due. This can be on the sale of real estate or other investments that have increased in value over their original purchase price, which is known as the 'tax basis'.
A capital gains rate of 0% applies if your taxable income is less than or equal to: $44,625 for single and married filing separately; $89,250 for married filing jointly and qualifying surviving spouse; and. $59,750 for head of household.
Long-term capital gains can't push you into a higher tax bracket, but short-term capital gains can. Understanding how capital gains work could help you avoid unintended tax consequences. If you're seeing significant growth in your investments, you may want to consult a financial advisor.
For individuals over 65, capital gains tax applies at 0% for long-term gains on assets held over a year and 15% for short-term gains under a year. Despite age, the IRS determines tax based on asset sale profits, with no special breaks for those 65 and older.
Do I Have to Pay Capital Gains Taxes Immediately? In most cases, you must pay the capital gains tax after you sell an asset. It may become fully due in the subsequent year tax return. In some cases, the IRS may require quarterly estimated tax payments.
Retaining corporate earnings. You can avoid double taxation by keeping profits in the business rather than distributing it to shareholders as dividends. ...
Pay salaries instead of dividends. You can distribute profit as salaries or bonuses instead of as dividends. ...
Justin, an Australian resident, buys a block of land. He owns it for 18 months and sells it, making a profit of $10,000. He has no capital losses. Justin is entitled to the 50% CGT discount for the land.
Put simply, a capital gain occurs when you sell an asset for more than what you originally paid for it. Almost any type of asset you own is a capital asset. This can include a type of investment (like a stock, bond, or real estate) or something purchased for personal use (like furniture or a boat).
Any time you sell an investment for more than you bought it, you potentially create a taxable capital gain. Capital gains can apply to almost any investment that is sold at a profit, such as stocks, bonds, real estate, precious metals, options contracts, or even cryptocurrency.
In this example, you see a capital gain of $100,000 on your home sale. If your income and asset class put you in the 20% capital gains tax bracket, you pay 20% of your profit. That's 20% of $100,000, or $20,000. You don't need to pay 20% of the entire $350,000 sale because you had to spend $250,000 to buy the asset.
Introduction: My name is Frankie Dare, I am a funny, beautiful, proud, fair, pleasant, cheerful, enthusiastic person who loves writing and wants to share my knowledge and understanding with you.
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