The first thing you need to determine when calculating capital gains taxes is how much you earned and lost from investments during the tax year. Any profits from the sale of assets held for less time than that are considered "short-term" capital gains.įederal Ordinary Income Tax Rates for Short-Term Capital Gains For investment profits to be considered "long-term," the asset must be held by the owner for at least one year before sale. The government splits capital gains into two categories: short-term and long-term. The timeline on which you purchase and sell your assets comes into play for capital gains taxes. These gains constitute income, so the federal government (as well as some state governments) will tax them. This is referred to as a capital loss.Īt the end of the year, you tally up your capital gains and losses if you've had a good year and your gains exceed your losses, then you deduct your losses from your gains to find your net capital gains. Let's say another investment doesn't do as well, and you sell it for less than what you originally paid for it. In this case, you have capital gains of $30. If you do, these profits are referred to as "capital gains" by the government.įor example, let's say you buy 10 stocks in a company at $12, then later sell them at $15 a share. When you buy an investment asset, you're hoping that it will appreciate in value, thereby giving you the option to sell it for more than you initially paid for it. What Are Capital Gains, and How Are They Taxed? In this article we'll explain how the capital gains tax works, the difference between long- and short-term capital gains, the rates you'll pay on the federal and state levels, and how to minimize the tax impact on your investments.Ī financial advisor can help you tax-optimize your investment portfolio. Depending on how long you've held the asset before selling it, you'll be taxed at either the short-term or long-term capital gains rate. Any profit you earn from selling an investment is known as a capital gain, and the tax on this form of income is called the capital gains tax. It's true of money you earn from a job, and it's true of money you earn from investments - whether that's stocks, real estate or collectibles. If you make money from just about any source, you're likely to find Uncle Sam nearby.
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