Capital Gains Tax Brackets 2020: What They Are and Rates

What Are Capital Gains?

2020 Capital Gains Tax Brackets

Short-Term Capital Gains Rates

Tax rates for short-term gains are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Short-term gains are for assets held for one year or less - this includes short term stock holdings and short term collectibles.

Long-Term Capital Gains Rates

Just like short-term gains, there are four filing categories: single, married and filing jointly, head of household, and married and filing separately. The amount of taxes paid is based on income.

The brackets adjusted slightly upwards for 2020.

Long-term gains are those on assets held for over a year. Below, the percentage of taxes paid are listed on the left with the corresponding income on the right.

Net Investment Income Tax (Medicare Tax)

The Net Investment Income Tax (NIIT) or Medicare Tax applies at a rate of 3.8% to certain net investment income of individuals, estates and trusts that have income above the statutory threshold amounts.

In general, investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, non-qualified annuities, income from businesses involved in trading of financial instruments or commodities and businesses that are passive activities to the taxpayer

Individuals will owe the tax if they have Net Investment Income and also have modified adjusted gross income over the following thresholds:

Collectible Long Term Capital Gains Rate

Collectibles held over one year are always taxed at 28%. 

Collectibles include gold and silver, art work, rare coins, antiques, and more.

2019 Capital Gains Tax Brackets

Here are the 2019 capital gains tax rates. 

Short-Term Capital Gains Rates

Tax rates for short-term gains are 10%, 12%, 22%, 24%, 32%, 35%, and 37%.

Short-term gains are for assets held for one year or less - this includes short term stock holdings and short term collectibles.

Long-Term Capital Gains Rates

Just like short-term gains, there are four filing categories: single, married and filing jointly, head of household, and married and filing separately. The amount of taxes paid is based on income.

Long-term gains are those on assets held for over a year. Below, the percentage of taxes paid are listed on the left with the corresponding income on the right.

Net Investment Income Tax (Medicare Tax)

Individuals will owe the tax if they have Net Investment Income and also have modified adjusted gross income over the following thresholds:

Collectibles held over one year are always taxed at 28%. 

Collectibles include gold and silver, art work, rare coins, antiques, and more.

Calculating Capital Gains and Losses

While you can have a capital gain from the profitable sale of an asset, you can also have a capital loss from the sale of an asset below your purchase price or adjusted basis.

As an example, say you buy and sell stock in the same year up to November. Your trading has netted $10,000 in profits. These profits are classified as short-term gains because they’re less than a year old. Then in December of the same year, you sell more stock for a loss of $3,000. Your capital gain is reduced to $7,000.

A different investor buys and sells some stock during a year and manages to lose $5,000. This investor has a capital loss of $5,000 but can only declare $3,000 ($1,500 if married filing separately) for the current year. What happens to the remaining $2,000?

The $2,000 capital loss in the previous example is carried over to the next year. It can be applied as a capital loss. Using another example, our investor has a capital gain of $10,000 in the next year. They can offset this gain and reduce their taxes by the amount carried over from the previous year: $2,000. Their new capital gain is then $8,000.

With capital gains, your capital gain is stacked on top of other ordinary income before the bracket and rate is calculated. This does leave some planning opportunity to try and minimize the taxes paid, but given the 0% bracket is relatively low, it likely means your gains will extend into other brackets.

While at the marginal level, capital gains are flat taxed - in practice, your gain can be subject to different tax rates depending on the amount of the gain. You can see this in the tax brackets section above. If you are single and make a $45,000 capital gain on top of your $40,000 in ordinary income, your long-term capital gains tax bracket is 15%. You will then pay $6,750 ($45,000 x 0.15) in taxes on this gain.

However, if you're single, and have no other income other than your $45,000 capital gain, your first $40,000 would be in the 0% bracket, and the remaining $5,000 would be taxed at 15%.

How to Reduce Your Taxes

Keeping Investments for at Least a Year

If you hold investments for at least a year before selling, you’ll be able to take advantage of long-term gains.

Use a Robo-Advisor

Robo-advisors have become very popular. While they haven’t yet replaced financial advisors, for most people, they can help save on taxes.

Robo-advisors use a method called tax-loss harvesting. By selling losers, gains on winners are offset. Of course, you can perform tax-loss harvesting manually. However, robo-advisors make this task easy through the use of automation.

It seems there is nowhere to hide from taxes. But arming yourself with knowledge about capital gains taxes can help you save money. We’ve already seen a few practical tips. Your accountant is likely to have more. Ask your accountant questions throughout the year so you can set yourself up for maximizing capital gains tax reductions.

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