How Capital Gains Taxes Work
Short-term capital gains apply to assets held for less than one year and are taxed at your ordinary income tax rate. Long-term capital gains apply to assets held for one year or more and benefit from preferential lower rates.
Long-term rates are 0%, 15%, or 20% depending on your total taxable income and filing status. Most taxpayers fall into the 15% bracket. The 0% rate applies to lower-income taxpayers, while the 20% rate applies to high earners.
An additional 3.8% Net Investment Income Tax (NIIT) may apply if your modified adjusted gross income exceeds certain thresholds. This calculator provides a simplified estimate without the NIIT.
Frequently Asked Questions
What is the difference between short-term and long-term capital gains?
Short-term gains are from assets held under one year and are taxed as ordinary income. Long-term gains are from assets held one year or longer and receive preferential tax rates of 0%, 15%, or 20%.
Can I offset gains with losses?
Yes, capital losses can offset capital gains. If your losses exceed your gains, you can deduct up to ,000 of net losses against ordinary income per year. Remaining losses carry forward to future years.
Do I pay capital gains tax on my home sale?
You may exclude up to ,000 of gain (,000 for married couples) on your primary residence if you lived there for at least 2 of the last 5 years. Gains above the exclusion are taxable.
When do I owe capital gains tax?
Capital gains tax is owed when you sell or dispose of an asset. Unrealized gains (assets you still hold) are not taxed. The tax is due in the year the sale occurs.
Are dividends taxed as capital gains?
Qualified dividends are taxed at the same preferential rates as long-term capital gains. Ordinary dividends are taxed at your regular income tax rate. Most dividends from US companies are qualified if held for the required period.