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2018-2019 Capital Gains Tax Rates — and How to Avoid a Big Bill

All about long-term and short-term capital gains tax rates, including what triggers capital gains tax, how it's calculated, and 6 ways to cut your tax bill.
May 15, 2019
Investing, Investment Taxes, Taxes
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In 2018 and 2019 the capital gains tax rates are either 0%, 15% or 20% for most assets held for more than a year. Capital gains tax rates on most assets held for less than a year?correspond?to ordinary income tax brackets (10%, 12%, 22%, 24%, 32%, 35% or 37%).

Capital gains are the profits from the sale of an asset — shares of stock, a piece of land, a business — and generally are considered taxable income. A?lot depends on how long you held the asset before selling.

  • Short-term capital gains tax?is a tax on profits from the sale of an asset held for one year or less.?Short-term capital gains tax?rates?equal your ordinary income tax rate — your tax bracket. (Not sure what tax bracket you’re in? Review this rundown on?federal tax brackets.)
  • Long-term capital gains tax?is a tax on?profits from the sale of an asset held for more than a year.?Long-term capital gains tax rates?are 0%, 15% or 20% depending on your taxable income and filing status. They are generally lower than short-term capital gains tax rates.
  • Capital gains tax rules can be different for home sales. Learn more here.

2019 capital gains tax rates

Expand the filing status that applies to you.

Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $39,375
15%$39,376 to $434,550
20%$434,551 or more
Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $78,750
15%$78,751 to $488,850
20%$488,851 or more
Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $52,750
15%$52,751 to $461,700
20%$461,701 or more
Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $39,375
15%$39,376 to $244,425
20%$244,426 or more

2018 capital gains tax rates

Expand the filing status that applies to you.

Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $38,600
15%$38,601 to $425,800
20%$425,801 or more
Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $77,200
15%$77,201 to $479,000
20%$479,001 or more
Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $51,700
15%$51,701 to $452,400
20%$452,401 or more
Long-term capital gains tax rateYour income
* Short-term capital gains are taxed as ordinary income according to federal income tax brackets.
0%$0 to $38,600
15%$38,601 to $239,500
20%$239,501 or more

How capital gains are calculated

  • Capital gains taxes can apply on investments, such as stocks or bonds, real estate (though usually not your home),?cars, boats and other tangible items.
  • The money you make on the sale of any of these items is your capital gain. Money you lose is a capital loss.
  • You can use investment capital losses to offset gains. For example, if you sold a stock for a $10,000 profit this year and sold another at a $4,000 loss, you’ll be taxed on capital gains of $6,000.
  • The difference between your capital gains and your capital losses is called your “net capital gain.” If your losses exceed your gains, you can deduct the difference on your tax return, up to $3,000 per year ($1,500 for those married filing separately).
  • You include your capital gain?in your income to figure out what tax rate applies to the capital gain. Capital gains taxes are progressive, similar to income taxes.

Watch out for two things

1. Rule exceptions. The capital gains tax rates in the tables above apply?to most assets, but there are some noteworthy exceptions. Long-term capital gains on so-called “collectible assets” are generally taxed at 28%; these are things like coins, precious metals, antiques and fine art. Short-term gains on such assets are taxed at the ordinary income tax rate.

2. The net investment income tax. Some investors may owe an additional 3.8% that applies to whichever is smaller: your net investment income or the amount by which your modified adjusted gross income exceeds the amounts listed below.

Here are the income thresholds that might make investors subject to this additional tax:

  • Single or head of household: $200,000
  • Married, filing jointly: $250,000
  • Married, filing separately: $125,000

How to minimize capital gains taxes

Hold on

Whenever possible, hold an asset for a year or longer so you can qualify for the long-term capital gains tax rate, since it’s significantly lower than the short-term capital gains rate for most assets.

Exclude home sales

To qualify, you must have owned your home and used it as your main residence for at least two years in the five-year period before you sell it. You also must not have excluded another home from capital gains in the two-year period before the home sale. If you meet those rules, you can exclude up to $250,000 in gains from a home sale if you’re single and up to $500,000 if you’re married filing jointly. (Learn more here about how capital gains on home sales work.)

Rebalance with dividends

Rather than reinvest dividends in the investment that paid them,?rebalance?by putting that money into your underperforming investments. Typically, you’d rebalance by selling securities that are doing well and putting that money into those that are underperforming. But using dividends to invest in underperforming assets will allow you avoid selling strong performers — and thus avoid capital gains that would come from that sale.

Use tax-advantaged accounts

These include 401(k) plans, individual retirement accounts and 529 college savings accounts, in which the investments grow tax-free or tax-deferred. That means you don’t have to pay capital gains tax if you sell investments within these accounts. Roth IRAs and 529s in particular have big tax advantages. Qualified distributions from those are tax-free; in other words, you don’t pay any taxes on investment earnings.?With traditional IRAs and 401(k)s, you’ll pay taxes when you take distributions from the accounts in retirement.?(Learn more here about taxes on your retirement accounts.)

Carry losses over

If your net capital loss exceeds the limit you can deduct for the year, the IRS allows you to carry the excess into the next year, deducting it on that year’s return.

Consider a robo-advisor

Robo-advisors manage your investments for you automatically, and they often?employ?smart tax strategies, including tax-loss harvesting, which involves selling losing investments to offset the gains from winners.

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