2021 Capital Gains Rate – How Much Do You Owe In Taxes?

Capital gains refer to the gains from the sale of assets, which may include stocks, bonds, mutual funds, jewelry, or a business. The tax rate on capital gains depends on how long you held the assets (less than a year or more than a year) and your income bracket.

Short-term capital gains vs Long-term capital gains tax

Short-term capital gains tax refers to a tax on the sale of assets held for 1 year or less, whereas long term capital gains tax refers to tax on assets held for more than 1 year.

Long-term capital gains

Long-term capital gains tax rate is 0%, 15% or 20% depending on your taxable income and filing status.

Qualified Dividend Tax RateSingle Filers Married Filing JointlyHeads of HouseholdMarried Filing Separately
0%$0-$40,400$0-$80,800$0-$54,100$0-$40,400
15%$40,401-$445,850$80,801-$501,600$54,101-$473,750$40,401-$250,800
20%$445,851 or more$501,601 or more$473,751 or more$250,801 or more

Short-term capital gains

The short-term capital gains tax rate is your ordinary income tax rate (your tax bracket) as shown in the table below.

Qualified Dividend Tax RateSingle Filers Married Filing JointlyHeads of HouseholdMarried Filing Separately
10%$0 to $9,950$0 to $19,900$0 to $14,200$0 to $9,950
12%$9,951 to $40,525$19,901 to $81,050$14,201 to $54,200$9,951 to $40,525
22%$40,526 to $86,375$81,051 to $172,750$54,201 to $86,350$40,526 to $86,375
24%$86,376 to $164,925$172,751 to $329,850$86,351 to $164,900$86,376 to $164,925
32%$164,926 to $209,425$329,851 to $418,850$164,901 to $209,400$164,926 to $209,425
35%$209,426 to $523,600$418,851 to $628,300$209,401 to $523,600$209,426 to $314,150
37%$523,601 or more$628,301 or more$523,601 or more$314,151 or more

Exceptions

Tax laws are complicated.  Here are a few exceptions to the tax rates discussed above.

Net investment income tax

An additional 3.8% tax may apply to some people. The additional tax is applied to the smaller of your net investment income or the amount by which your adjusted gross income (AGI) exceeds the amounts below.

  • Single or head of household: $200,000
  • Married, filing jointly: $250,000
  • Married, filing separately: $125,00

Home Sales

If you sell a home, you can exclude up to $250,000 in gains from taxes if you are single. That amount goes up to $500,000 if you married. To qualify, you must have owned and used your home as your primary residence for at least two years in the 5-year period before you sell it. You should also not have excluded another home from capital gains in the 2-year period.

How to reduce your capital gains taxes

Increase your holding period

The tax rates of long-term capital gains are much lower than short-term capital gains. If you hold your stocks longer than 12 months, you will pay less in taxes.

Carry Over Losses

If you don’t have enough capital gains to offset your losses, tax laws allow you to carry the excess into subsequent years. There is a limit to how much you can deduct per year, but tax-loss carryover will reduce taxes.

Increase your investment in tax-advantaged accounts

Investing more in tax-advantaged accounts such as the 401(k) will defer your taxes until you withdraw from the account (you will pay ordinary income taxes upon withdrawal). With Roth IRA, you invest with after-tax money, and won’t pay any taxes when you withdraw money.

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