If you sell stocks, mutual funds or other capital assets that you held for at least one year, any gain from the sale is taxed at either a 0%, 15% or 20% rate. Those tax rates for long-term capital gains are typically much lower than the ordinary tax rates you'd otherwise pay, which can be as high as 37%.
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However, which one of those capital gains rates – 0%, 15% or 20% – applies to you depends on your taxable income. The higher your income, the higher the rate. Here are the capital gains taxable income thresholds for the 2020 tax year:
2020 Capital Gains Tax Rate Income Thresholds
Capital Gains |
Taxable Income |
Taxable Income |
Taxable Income |
Taxable Income |
|
0% |
Up to $40,000 |
Up to $40,000 |
Up to $53,600 |
Up to $80,000 |
|
15% |
$40,001 to $441,450 |
$40,001 to $248,300 |
$53,601 to $469,050 |
$80,001 to $496,600 |
|
20% |
Over $441,450 |
Over $248,300 |
Over $469,050 |
Over $496,600 |
The income thresholds for the capital gains tax rates are adjusted each year for inflation. Here are the adjusted thresholds for the 2021 tax year:
2021 Capital Gains Tax Rate Income Thresholds
Capital Gains |
Taxable Income |
Taxable Income |
Taxable Income |
Taxable Income |
|
0% |
Up to $40,400 |
Up to $40,400 |
Up to $54,100 |
Up to $80,800 |
|
15% |
$40,401 to $445,850 |
$40,401 to $250,800 |
$54,101 to $473,750 |
$80,801 to $501,600 |
|
20% |
Over $445,850 |
Over $250,800 |
Over $473,750 |
Over $501,600 |
Tax on Net Investment Income
There's an additional 3.8% surtax on net investment income (NII) that you might have to pay on top of the capital gains tax. (NII includes, among other things, taxable interest, dividends, gains, passive rents, annuities and royalties.) You must pay the surtax if you're a single or head-of-household taxpayer with modified adjusted gross income over $200,000, a married couple filing a joint return with modified AGI over $250,000, or a married person filing a separate return with modified AGI over $125,000. Use Form 8960 to calculate the surtax.
Biden's Plans to Increase Rates for Wealthy Americans
President Biden is expected to include a capital gains tax increase for wealthy Americans in his next infrastructure plan. If news reports are accurate, the soon-to-be-released American Families Plan will require anyone making more than $1 million per year pay tax on long-term capital gains at the top income tax rate for ordinary income. That's currently 37%, but the president is also expected to call for an increase in the top rate for ordinary income to 39.6%. When the additional tax on NII is factored in, investors earning $1 million or more could actually see their tax rate on capital gains jump to 43.4%. That's a potential increase of up to 19.6% over the current maximum tax.
For more on potential tax increases for the wealthy, see Does President Biden Want to Raise YOUR Taxes?
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