Capital Gains Tax Rates

Capital Gains Tax Rates

First of all, what are capital gains?  Capital gains are the profits from the sale of an asset other than inventory such as land, shares of stock, or a business.

Why capital gains matter?  Generally, capital gains are considered taxable income.

What capital gains tax rate applies?  Federal income tax law generally applies lower tax rates to long-term capital gains income. Long-term means assets held longer than one year.

What are the capital gains tax rates for 2018?  For the 2018 tax year, the capital gains tax rates are either 0%, 15% or 20% for most assets held for more than a year.  Capital gains tax rates on short-term capital gains (most assets held for less than a year) correspond to the taxpayer’s ordinary income tax brackets (10%, 12%, 22%, 24%, 32%, 35% or 37%).  For details on the tax rate applicable to each income tax bracket by filing status, visit capital-gains-tax-rates.

Qualified Dividends

Furthermore, the long-term capital gains tax rates (0%, 15% or 20%) also apply to qualified dividends.  Qualified dividends are dividends from the stock of a domestic corporation or a qualifying foreign corporation.  In addition, the taxpayer must hold the stock “for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date.”  IRS Publication 550, Investment Income and Expenses.

Brian J. Thompson, CPA & Attorney