What Are the 2013 Capital Gains Tax Rates? - NerdWallet

What Are the 2013 Capital Gains Tax Rates?

Update for 2015: Click here for the complete table of capital gains tax rates for the 2015 tax year.

There are several new tax laws and provisions to be aware of as we head into 2013 tax season, but one of the most important ones is the change that is taking place when it comes to capital gains tax rates.

Due to new fiscal cliff legislation, capital gains & dividend tax rates are increasing from 15% to 20% for singles earning over $400,000 and couples earnings over $450,000.  Additional changes include:

  • Individuals making in the $36,250 to $400,000 range will see their capital gains continue to be taxed at a 15% tax rate.  Meanwhile, earners in the lowest two income tax brackets will pay 0% on investment income.
  • There will also be an additional 3.8% investment income tax applied to singles earning over $200k and couples earning over $250k.  The purpose of this new tax is to help fund Medicare.

How To Minimize Capital Gains Taxes

Capital gains taxes can be minimizes in two major ways:  by investing for a long time – and a very long time.  If you invest for over a year, your capital gains become “long-term” rather than “short-term” and are taxed at the lower long-term capital gains rate.  Short-term capital gains are typically taxed at the higher short-term rate.  If you really want to minimizing taxes, invest for the very long term in assets with low dividend yields.  Taxes are incurred when assets are sold or dividends are received, so by holding an asset for many years and minimizing dividends you are effectively deferring taxes for many years.  By deferring taxes, your investment is able to compound more quickly, just as it would in a tax-advantaged account like an IRA or 401(k).

This tax-minimization strategy requires holding positions for long periods.  To do so, you’ll want an investment account with a brokerage that will be around for a long time.  You will also want to have access to quality fundamental company research so that you can invest carefully up front, since changes later will incur taxes.  NerdWallet recommends the following brokers because of their long-established reputation and their access to the highest quality research:

  • TD Ameritrade – With over 5 million customers, TD Ameritrade is one of the best established brokerages in the country.  The company is know for customer service and access to top tier research.  Stock trades cost $9.95 and the company provides free access to over 2,500 no-transaction-fee mutual funds.
  • E*trade – With almost 3 million customers and over 20 years in business, E*trade has built a reputation for excellence in trading platforms.  The company offers over 1,300 no transaction fee mutual funds, $9.99 trades, and free access to fundamental company research.
Capital gains taxes can also be minimized by taking advantage of tax-advantaged investment options like retirement accounts.  For more information on IRA, check out the NerdWallet list of the best Roth IRA account providers of 2013.


What Are Capital Gains?

The IRS defines capital gains and losses as such:

“Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, personal use items like household furnishings, and stocks or bonds held as investments. When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for is a capital gain or a capital loss.”

Put simply, the money you make on any investment is your capital gain – while any money you lost would be your capital loss.

In terms of the tax paperwork needed to file in 2013, the IRS further explains:

“Capital gains and deductible capital losses are reported on Form 1040, Schedule D (PDF), Capital Gains and Losses, and on Form 8949 (PDF), Sales and other Dispositions of Capital Assets. If you have a net capital gain, that gain may be taxed at a lower tax rate than your ordinary income tax rates.”

There are many exceptions to these general guidelines, so always be sure to consult a certified tax professional for any specific advice.

Why Are Your Investments Taxed?

Almost all countries tax capital gains to provide an additional source of national revenue.  In the U.S., most capital gains are taxable by the IRS, giving the government a portion of any profits you make when you successfully invest.  Though it varies widely by country, in the U.S. our net annual capital gains are what get taxed, as well as dividends.

This is one of the reasons that an individual retirement account (IRA) is such an appealing option for investors saving for retirement; they can invest money in a tax-advantaged account such that the profits they earn over time become tax free during their life time.  While the details vary by the type of tax-advantaged account you select, these are on the whole a very effective money management strategy because your money avoids high tax rates as it grows.

What If Your Investments Lost Money This Year?

Worried about how to file if your investments lost money this year?  Don’t fear – you can use your capital losses to offset your gains, thereby potentially affecting the rate at which you are taxed.  If you sold your investment at less than the purchase price you paid for it, you may be eligible here.

To get started, check out IRS Form 8949 and Form 1040 (Schedule D) to accurately recording your capital gains and losses.

For more details on how the new tax rates apply to you, visit NerdWallet’s comprehensive guide to 2013 investment tax rates.

Additional Tax Day Resources:

See also: Interested in learning how to invest, or ready to get started?  Check out NerdWallet’s picks for the best online brokerage accounts for new and experienced investors alike.

by Susan Lyon

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  • pdog

    I put my money at risk and they want a cut of that. what a piece of crap.

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  • Sunny

    I am on a work visa in USA from last 8 yrs. I bought a residential property in India more then 5 yrs back and plan to seel it. My annual income is around $80,000. I have not lived in that property at all as I live in US in a rented place. Now, will I owe capital gain tax in the USA for the gain I make in the sale of my property?

  • Sammy5

    I wish to sell my home and am of full retirement age, will be collecting Soc Sec and still working part-time as of June 1, 2013. I have rented out 50% of my home since 1992. If I understand correctly, if my total taxable income (income after deducting 401K contribution, standard deduction, and any rental expenses and depreciation) is less than 36,250 on my 2013 income tax, I will fall into lowest two tax brackets for Capital Gains and will pay “0” on investment income from the sale of the 50% of my home that I rented for years. Sale price of home 275,000 to 300,000. I understand the other 50% of my home sale is tax free as there is up to a $250,000 standard “no tax” deduction for a “single” filer. Is my thinking correct? Can I deduct expenses and depreciation of rental from my gross income to arrive at a figure less than 36,250? Thanks for your informative website.

  • TOM

    If I cash in stocks that were “given to me” what would the capital gain tax be.

  • SandLH

    I will sell my company. The following example could be reality, I have 1 million as a cost basis of starting and keeping the company going and I could end up selling for 10 million. So I have a 9 million gain, although the period of time to get paid this could be over a few years. Is it possible to avoid capital gains if the “gain” is invested immediately into something else for the long term? The 9 million then becomes income to someone or something else so I would guess they would be taxed on it depending on what they do, or is this just where the government essentially does a double taxation of sorts?

  • Annie

    We (a couple filing jointly) sold a land parcel for 161,000.00 in 2013 that we had owned for 34 years, never had an income from it, and are retired with an income of 35000.00. What will our capital gains rate be? Thanks for any help you can give me.

  • http://tomazz1.wordpress.com/2014/03/08/tax-planning-for-pfics-and-cfcs-and-fatca/ Thomas Azzara

    The Capital gains tax is zero for offshore foreign bankers in tax havens like the Cayman Islands and Bermuda.

    Foreign banks in tax havens have an unfair advantage over the
    American taxpayer, and it isn’t just and it isn’t fair.

    I’ve filed a FBAR since 1995 – with signature authority over Financial account of an offshore company. No IRS problems yet!
    If you plan Carefully, and file 8621 for a (“few”) pedigreed QEFs, you can reduce your tax Liability on short term and long term capital gains (just like the offshore Foreign banks in tax havens do and have done for over 40 years) and other SubPart F type income (section 954(a) to a low rate of .5%. Of course the Offshore foreign banks still pay NOTHING (0%) under the unusual US Tax Code on the capital gains receive on US investment, but 1/2 of 1% (with 2 pedigreed QEFs) Tax on capital gains is no so bad.


    Foreign banks in tax havens use deceit, subterfuge, camouflage, concealment to hide US taxpayer accounts, who often trade in so called “Street name” and file a
    W-8BEN with the banker.

    Now, under FATCA, foreign bankers will be reporting American securities accounts in obstruction to the host country’s own bank secrecy and confidentiality laws.

    Very unjust to American tax planners and US investors. Congress does nothing to level the playing field generally speaking. See link above. It may be one of the few avenues left for the American taxpayer.

    “Avoidance of taxes is not a criminal offense. Any attempt to reduce alleviate taxes by legitimate means is permissible. The distinction between evasion and avoidance is fine yet definite. One who avoids tax does not conceal or misrepresent. He shapes events to reduce or eliminate tax liability and upon the happening of the events makes a complete disclosure.

    Evasion on the other hand involves deceit subterfuge camouflage concealment someattempt to color or obscure events or making things seem other than what they are.” — Internal Revenue Service

  • Tammy

    We are thinking about selling our rental property which will mostly result a Net gain of $200K. How much (tax rate%) should we be estimating to pay for income taxes? We have a combined income of $240K.

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