Capital Gains Tax Rate
Capital tax is the tax you have to pay from the profits you derive from the sale of a capital asset such as stocks and real estate. There are many factors you have to consider when you want to determine the capital gains tax rate of an asset you want to sell. Some of these considerations include the timeframe in which you bought and sold the asset, the tax code changes that were made, and even your current income level.
Generally though, there is a set percentage by which you could be taxed. You can be taxed at 5%, at 15%, at 25%, and at 28%. These taxes apply when you hold the capital asset for more than a year. Otherwise, if you hold it for less than a year, regular income tax on the capital asset will apply.
Your income level is one of the factors that significantly contribute to how much taxes you have to pay. In the past, the capital tax rate for people who are at the higher income brackets had to pay 20% from the capital gains tax rate. Meanwhile, people from the lower income bracket only had to pay 10% of their capital gain. However, these laws have changed since May 2003 when the capital tax rates were lowered by 5% for both income brackets. So people from the higher income bracket only need to pay 15% capital tax while people from the lower income bracket now only pay 5%.
You should note though, that these rates are the long-term capital gains tax rate, which means that you have to hold the asset you intend to sell for more than a year to have these benefits. Otherwise, if you hold it for less than a year, you will be taxed at the regular income tax rate which goes as high as 35%.
But while the 5% and the 15% capital tax rates are the most commonly-known tax rates, there are still other tax rates that you should be aware of. So let’s look deeper into each of these tax rates:
The 5% capital gains tax rate
As was mentioned earlier, the 5% tax rate would only apply to individuals who are lower than the 15% income bracket. But the people in this income bracket would not even have to pay the 5% starting in 2008 because of the changes made to the tax laws.
The 15% capital gains tax rate
Meanwhile, the 15% tax rate is the most widely applied tax rate today. This capital gains tax rate applies to people who are in the top 25% of income earners. But when you hear the term “lower capital gains rate,” it means a 15% tax rate because there are very few individuals who have incomes that are low enough to qualify for the 5% capital gains tax rate.
The 25% capital gains tax rate
On the other hand, the 25% tax rate only applies to capital gains from selling properties that have depreciated over the years. Why is this so, you might wonder? Basically, the 25% tax rate was developed to prevent you from taking advantage of the double tax break. This is because you have been getting tax breaks over the years while your property was depreciating.
The 28% capital gains tax rate
The 28% tax rate applies to collectibles and stocks. When you realize capital gains from your stock, you usually exclude around one-half of your profit. The remainder of this can be taxed at 28%. You will also pay the 28% tax rate when you sell collectibles such as artworks, antiques, and coins, among others.