Let’s discuss the taxation of capital gains, in light of the new tax law and other goings-on.
Long-term gains still get favorable rates. Profits from the sale or exchange of capital assets held for more than a year are taxed at 0%, 15% or 20%.
But figuring the rates is a bit more complex.
It used to be based on your tax bracket. Prior to 2018, the 0% rate applied to taxpayers in the 10% or 15% income tax brackets, the 20% rate hit filers in the 39.6% top bracket, and the 15% rate was for people who landed in the other brackets.
Now, your capital gains tax rate is based on set income thresholds, which will be adjusted annually for inflation.
For 2018:
- The 0% rate applies to taxpayers with taxable income under $38,600 on single returns and $77,200 on joint returns.
- The 20% rate starts at $425,800 for singles and $479,000 for jointly filed returns.
- The 15% rate is for filers with taxable incomes between the 0% and 20% break points.
Don’t forget about the 3.8% surtax on net investment income of singles with modified AGIs over $200,000 and couples over $250,000. It’s due on the smaller of net investment income or the excess of modified AGI over these set amounts.