[Update: Check out the 2016 capital gains rates now as you prepare for your next tax filing.]
When it comes to investing — whether in the markets or in a material item like a home — you want the value of what you bought to go up. But that uptick in value also comes with a downside: capital gains taxes.
Capital gains taxes are levied on the difference between what you paid for an asset (also known as your basis) and what you sell the asset for, and they’re divided into short-term and long-term gains based on the amount of time you owned the asset. Short-term capital gains tax rates are equal to your ordinary income tax. Tax rates on long-term capital gains — generally assessed on investments you’ve held for longer than a year — are much more generous; many taxpayers qualify for a 0% tax rate.
Here’s a brief overview of the rates in effect for this year, and the income levels that put you into each tax bracket:
|2015 Capital Gains Tax Rates|
|Single||Married Filing Jointly||Married Filing Separately||Head of Household||Tax Bracket||Short-Term Capital Gains Rate||Long-Term Capital Gains Rate|
|Up to $9,225||Up to $18,450||Up to $9,225||Up to $13,150||10%||10%||0%|
|$9,225 to $37,450||$18,451 to $74,900||$9,226 to $37,450||$13,151 to $50,200||15%||15%||0%|
|$37,451 to $90,750||$74,901 to $151,200||$37,451 to $75,600||$50,201 to $129,600||25%||25%||15%|
|$90,751 to $189,300||$151,201 to $230,450||$75,601 to $115,225||$129,601 to $209,850||28%||28%||15%|
|$189,301 to $411,500||$230,451 to $411,500||$115,226 to $205,750||$209,851 to $411,500||33%||33%||15%|
|$411,501 to $413,200||$411,501 to $464,850||$205,751 to $232,425||$411,501 to $439,000||35%||35%||15%|
|$413,201 and over||$464,851 and over||$232,426 and over||$439,001 and over||39.6%||39.6%||20%|
As you can see, you can be in highest ordinary income tax bracket — 39.6% — and still pay no more than 20% in long-term capital gains taxes. Those in the 10% and 15% brackets pay no tax on long-term capital gains.
Some investors may also be liable for the Net Investment Income Tax, an additional 3.8% that applies to whichever is smaller: your net investment income, or the amount by which your modified adjusted gross income exceeds the threshold amounts listed below. For more on this, check out the IRS’s explanation and this Q&A. Here are the income thresholds that might make investors subject to this additional tax:
- Single or head of household: $200,000
- Married filing jointly: $250,000
- Married filing separately: $125,000
Again, check out the 2016 capital gains tax rates — and see more on how they’re calculated and how you can minimize your burden.