Before 2013, Capital Gains Taxes were simple.
The fiscal cliff deal, officially known as the American Taxpayer Relief Act of 2012 increased Capital Gains Taxes in 2013. This year, in 2014 the Capital Gains Tax rates remain almost the same from last year.
For those new to issues of taxation, the IRS defines a capital gain this way:
Almost everything you own and use for personal or investment purposes is a capital asset. Examples include a home, personal use items like household furnishings, and stocks or bonds held as investments. When a capital asset is sold, the difference between the basis in the asset and the amount it is sold for is a capital gain or capital loss.
There are two different types of capital gains:
- short-term capital gains
- long-term capital gains
A short-term capital gain results from selling an asset held for one year or less. A long-term capital gain results from selling an asset held for longer than one year.
This distinction is important because each are taxed differently.
2013 Capital Gains Tax Rates:
As of 2013, some major changes were made to long-term capital gains. The 2013 long-term capital gains and dividends income are taxed at the following rates;
- 0% if you fall into the 10% or 15% tax bracket. This includes singles filers with incomes below $36,250.
- 15% if you fall into the 25%, 28%, 33%, or 35% tax bracket. This includes single filers whose incomes fall into the $36,250-$400,000 range.
- 20% if you fall into the new 39.6% tax bracket. This includes single people earning over $400,000 and married couples making over $450,000.
Also new in 2013, capital gains income is subject to an additional 3.8% Medicare tax if you are a single filer with an income over $200,000 or a married couple with an income over $250,000.
2014 Capital Gains Tax Rates:
You’ll notice that the 2014 income thresholds have slightly increased this year;
- 0% if you fall into the 10% or 15% tax bracket. This includes singles filers with incomes below $36,900
- 15% if you fall into the 25%, 28%, 33%, or 35% tax bracket. This includes single filers whose incomes fall into the $36,900-$406,750 range.
- 20% if you fall into the new 39.6% tax bracket. This includes single people earning over $406,750 and married couples making over $457,600.
If you do have a capital gain (or a capital loss) you may have to file the following forms along with your tax return:
These new rules, implemented in the 2013 tax year for capital gains are only a sliver of the changes for high earners brought about by the fiscal cliff. Others include a 0.9% Medicare surtax on wages, the phaseout of itemized deductions and personal exemptions, and an increase in the federal income tax rate.
Photo via Dave Hosford on Flickr.Tax News, Tax Tips.