If you sell an investment for more than you paid to buy it,
that profit is known as a capital gain on your investment. Like
ordinary income, the profit you receive is subject to taxes, but
at the federal level, the rates are often different from those on
your earnings from work. The capital gains tax rate in 2014
depends on your overall taxable income, the length of time you've
held the investment, and whether you took offsetting losses to
charge against some or all of your gain.
What is the capital gains tax rate in 2014?
While Congress can always change the law, as of Dec. 18, 2013,
the expected capital gains tax rates in 2014 for ordinary
investments are as follows:
(gains on assets owned for less than one year plus one day) are
taxed at your
ordinary income tax rates
ordinary income tax rates.
(gains on assets owned for at least one year plus one day) are
taxed depending on your overall income tax bracket. If your
overall income falls in:
the 10% or 15% marginal income tax brackets, then your
long-term capital gains tax rate is 0%.
the 25%, 28%, 33%, or 35% marginal income tax brackets,
your long-term capital gains tax rate is 15%.
the 39.6% marginal income tax bracket, your long-term
capital gains tax rate is 20%.
In addition, the capital gains of high-income earners are
subject to a net investment income tax of 3.8%, above and beyond
that capital gains tax rate. Those rates kick in at $125,000 if
you're married filing separately, $200,000 if you file single or
as a head of household, or at $250,000 if you're married filing
jointly or a qualifying widow(er) with a dependent child.
Not all assets fall under standard capital gains treatment.
Qualified small-business stock and collectibles carry a maximum
28% capital gains tax rate , and recaptured depreciation is taxed
at a maximum 25% capital gains tax rate in 2014. The big
break in capital gains tax rates generally comes when you sell
your home. If you've owned and lived in your home long enough to
qualify, you can exclude $250,000 of gain (or $500,000 if married
and filing jointly) from being subject to capital gains taxes
The benefits of losing money
The other thing to note when it comes to capital gains taxes in
2014 is that you
use losses to offset gains, though you can't claim a loss for
your taxes on the sale of your primary residence. If you have
more losses than gains, up to $3,000 of losses can go to offset
ordinary income, and the rest of your losses carry forward to
your next tax year.
Be careful with taking losses, though, because of something
known as the "Wash Sale" rule. In essence, if you sell an item
for a loss and then buy it or a "substantially identical" item
back within 30 days (before or after the sale), you can't
immediately claim your loss. Instead, the loss adjusts your basis
price and holding date on your new purchase.
Despite all that complexity, capital gains tax rates in 2014
generally remain lower than ordinary income taxes, especially for
assets that you've held for more than a year. Managed well over
an entire investing lifetime, your portfolio can give you plenty
of opportunity to leverage those lower rates to help your money
go further in your golden years.
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