Q:

How does your federal income tax bracket affect your capital gain tax rate?

A:

Quick Answer

Taxpayers in the 10 and 15 percent income tax brackets pay zero tax on net long-term capital gains, according to the Internal Revenue Service. Those in the 25 to 35 percent brackets pay up to 15 percent, and taxpayers in the 39.6 bracket pay up to 20 percent.

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How does your federal income tax bracket affect your capital gain tax rate?
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Full Answer

To qualify for the capital gains tax rate, the taxpayer has to have a net gain from selling assets held more than a year. Losses on sales of personal-use assets, such as a car, are not deductible and do not decrease taxable gains, explains the IRS. Assets held a year or less are short-term and taxed at the taxpayer's normal rate. Capital gains are subject to the 3.8 percent net investment income tax for taxpayers whose income is more than $250,000 on a joint return or $200,000 for single or head of household.

Certain dividends are eligible for the special capital gains rate but not all sales of assets are, warns financial adviser Charles Schwab & Co. Collectibles, such as art, coins or antiques, are taxed at a maximum 28 percent rate. Selling assets on which the taxpayer has claimed depreciation, such as equipment used in a business or a rental property, creates depreciation recapture, which can be taxed at a higher rate than capital gains.

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