The amount you’ll pay depends on your annual income but will range from 0% to 20% (certain assets including collectibles and section 1202 qualifying small business stock may be taxed at a rate of up to 28%). Instead, the federal government has special tax rates in place. Unlike short-term gains, long-term gains aren’t taxed at your ordinary tax rate. The benefit of holding an asset for longer than one year is that the long-term capital gains tax rates are lower than those for short-term capital gains. In both cases, your capital gain is the difference between your cost basis in the property (usually the amount you bought it for) and the amount you sell it for. In many ways, the rules for short-term and long-term capital gains are similar. While short-term capital gains are those on an asset you’ve held for less than one year, a long-term capital gain is on an asset you’ve held for more than one year. Depending on your tax bracket, your short-term capital gains tax could be anywhere between 10% and 37%. Rather than being taxed at the long-term capital gains tax rate, short-term capital gains are taxed as ordinary income. Short-term capital gains have a less favorable tax treatment than assets you hold for a longer period. For example, if you had sold those 100 shares of stock after just nine months, you would have a short-term capital gain. The difference between your cost basis of $10 per share and your sale of $15 per share is $5 per share, for a total capital gain of $500.Ī short-term capital gain specifically happens when you sell an asset that you’ve held for less than one year. ![]() Later on, you sell those same shares for $15 per share. What is the short-term capital gains tax?Ī capital gain happens when you sell an asset for more than your cost basis (which is usually the amount you paid for it).įor example, suppose you purchased 100 shares of stock at $10 per share. Learn more about capital gains taxes, how capital gains will affect your taxes this year, and see the capital gains tax rates for 20. ![]() Luckily, there are also steps you can take to reduce your capital gains tax burden. Short-term capital gains are taxed at a higher rate, while long-term gains have a more favorable tax treatment. The amount you’ll pay depends on how long you hold an asset. When you sell an asset for more than you paid for it, you end up with a capital gain and have to pay taxes on it. Have you considered how your investments will affect your tax liability?
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