Capital Gains Tax Increase 2023

Capital Gains Tax Rates: Everything You Need to Know

Understanding Capital Gains Tax

Capital gains tax is the tax imposed on profits made from the sale or exchange of a capital asset, such as stocks, bonds, or real estate. These assets are considered capital assets if they are held for more than one year before being sold.

Long-Term vs. Short-Term Capital Gains

Capital gains are classified as either long-term or short-term depending on the holding period of the asset. Long-term capital gains are taxed at lower rates than ordinary income, while short-term capital gains are taxed as ordinary income.

2023 and 2024 Capital Gains Tax Rates

The applicable tax rates for long-term capital gains for the 2023 (filed in 2024) and 2024 tax years are as follows:

• 0% for individuals with taxable income below $41,675 (single filers) or $83,350 (married couples filing jointly)
• 15% for individuals with taxable income between $41,676 and $459,750 (single filers) or $83,351 and $539,900 (married couples filing jointly)
• 20% for individuals with taxable income above $459,751 (single filers) or $539,901 (married couples filing jointly)

Biden's Proposed Capital Gains Tax Increase

President Biden's FY25 budget proposal would nearly double the long-term capital gains tax rate to 39.6%. This proposed increase would apply to investors who make at least $1 million in capital gains income.

How to Calculate Your Capital Gains Tax

Calculating your capital gains tax involves the following steps:

1. Determine the holding period of your asset.
2. Calculate your capital gain or loss by subtracting your cost basis from the sale price.
3. Apply the appropriate tax rate based on your taxable income and the holding period of your asset.

Conclusion

Capital gains tax is a significant factor to consider when investing. By understanding the tax rates and how they apply to your situation, you can make informed decisions that minimize your tax liability and maximize your investment returns. It is important to consult with a tax professional if you have questions or concerns about your specific circumstances.