Capital Gains Tax Rates

Jon Weaver Tax Information

Taxpayers are subject to a wide variety of tax rates. Common examples include income, sales, property and capital gains. This blog focuses on capital gains tax rates.

There are two different time frames involved with capital gains: short term and long term.

Short term applies to assets held for one year or less. The rate is the same as your ordinary income tax rate. The maximum ordinary income tax rate for 2020 is 37%.

Long term applies to assets held for more than one year. There are three rates: 0%, 15% or 20%. Your income level determines the rate. Here is a breakdown:

Married Filing Jointly

0% rate = $0 to $80,000

15% rate = $80,001 to $496,600

20% rate = $496,601 or more

Single

0% rate = $0 to $40,000

15% rate = $40,001 to $441,450

20% rate = $441,451 or more

The good news is that income from most assets follow the guidelines above including stock and bond sales. Some assets do not follow. For example, the maximum rate for the sale of collectables is 28%. Collectables include artwork, coins, antiques and other similar assets. The maximum rate for depreciation recapture on real estate is 25%. Deprecation recapture occurs when a taxpayer depreciates real estate then sells it down the road for a profit. Note that land is never depreciated so there must be structures on the land for depreciation recapture to apply.

Before selling a capital asset be sure to investigate how long you have owned it. If the asset qualifies for long term rates you may be better off waiting for your holding period to exceed one year before selling it. Doing so reduces your tax rate from ordinary (37% maximum) to long term capital gains (20% maximum). There are other factors to consider when selling a capital asset, but always keep short term versus long term in mind.