The tax rates for long-term capital gains are 0 percent, 15 percent, and 20 percent, with the specific rate you pay depending on your income level.
Understanding Long-Term Capital Gains Tax
Long-term capital gains tax is a specialized tax applied to profits made from the sale of assets, such as stocks, bonds, or real estate, that have been held for more than one year. This distinguishes them from short-term capital gains, which apply to assets held for a year or less and are typically taxed at your ordinary income tax rate.
Current Long-Term Capital Gains Tax Rates
The long-term capital gains tax rates are generally structured to encourage longer-term investments. Here are the potential rates:
| Long-Term Capital Gains Tax Rates |
|---|
| 0% |
| 15% |
| 20% |
Your specific rate from this range is determined by your taxable income. Generally, lower-income taxpayers may qualify for the 0% rate, while moderate-income taxpayers fall into the 15% bracket, and higher-income individuals are subject to the 20% rate.
Comparison to Ordinary Income Tax Rates
It's important to note that these long-term capital gains tax rates are typically much lower than the ordinary income tax rates, which apply to wages, salaries, and short-term capital gains. This preferential tax treatment for long-term gains is a significant benefit for investors.
Key Considerations for Investors
- Holding Period: The crucial factor for determining if a gain is long-term is whether the asset was held for more than one year. Selling an asset after holding it for exactly one year or less will result in a short-term capital gain, taxed at your regular income tax rate.
- Income Brackets: The income thresholds for each long-term capital gains tax rate are adjusted periodically for inflation. To determine your exact rate, you would need to refer to the specific income thresholds for the relevant tax year.
- Tax Planning: Understanding these rates is vital for tax planning, as strategically holding assets for longer than a year can significantly reduce your tax liability compared to selling them within a shorter timeframe.
