2021-2022 Capital Gains Tax Rates and How to Calculate Your Bill

As the saying goes, there’s nothing sure on this world however loss of life and taxes. If you’re promoting an funding for a revenue, it’s best to count on to pay taxes on the cash that you simply’ve made. However, taxes on any such revenue can work in another way from typical revenue taxes, making it necessary to know how capital positive aspects taxes work, what the tax charges are, and how one can calculate your general invoice.

What Are Capital Gains?

Capital positive aspects are the earnings you earn from promoting an funding. The funding in query is normally an asset like a inventory or bond however it may well additionally embrace issues like actual property.

When you promote an asset, you’ll be able to determine your capital acquire by taking the quantity you bought it for and subtracting the quantity you paid.

👉 For instance: If you purchase a inventory for $50, then promote it for $75, your complete capital acquire can be $75 – $50 = $25.

You also can expertise capital losses, the place you promote one thing for lower than you paid.

👉 For instance: Imagine shopping for a inventory for $50 after which promoting it for $40. In that state of affairs, you’ll have a capital lack of $50 – $40 = $10.

The capital positive aspects taxes you must pay will probably be based mostly in your internet capital positive aspects. If you promote a number of investments, some for a loss and a few for a acquire, you must calculate how a lot you made (or misplaced) general.

Short-Term Capital Gains vs. Long-Term Capital Gains

Some capital positive aspects are handled in another way from common revenue in relation to taxes. What determines how the positive aspects are handled is whether or not the positive aspects are thought of short-term or long-term.

If you purchase an funding and maintain it for lower than a full yr, any earnings you earn are thought of short-term capital positive aspects since you solely held the asset for a brief interval.

The excellent news is that short-term capital positive aspects taxes are easy. You deal with short-term capital positive aspects like common revenue, and so they’re taxed at your regular revenue tax charge.

If you maintain an asset for multiple yr, then any earnings you earn from promoting it are thought of long-term capital positive aspects. Long-term capital positive aspects obtain preferential tax remedy, so that you’ll pay a decrease tax charge on these positive aspects. Like revenue taxes, the speed you pay will probably be based mostly in your taxable revenue for the yr.

Federal Capital Gains Tax Rates

The federal authorities assesses capital positive aspects taxes on the following charges.

2021 Capital Gains Tax Rates

2021 Short-term capital positive aspects tax charges

Tax charge based mostly on revenue Single filers Head of family Married submitting collectively/qualifying widow Married submitting individually
10% $0 to $9,950 $0 to $14,200 $0 to $19,900 $0 to $9,950
12% $9,951 to $40,525 $14,201 to $54,200 $19,901 to $81,050 $9,951 to $40,525
22% $40,526 to $86,375 $54,201 to $86,350 $81,051 to $172,750 $40,526 to $86,375
24% $86,376 to $164,925 $86,351 to $164,900 $172,751 to $329,850 $86,376 to $164,925
32% $164,926 to $209,425 $164,901 to $209,400 $329,851 to $418,850 $164,926 to $209,425
35% $209,426 to $523,600 $209,401 to $523,600 $418,851 to $628,300 $209,426 to $314,150
37% $523,600 or extra $523,600 or extra $628,300 or extra $314,151 or extra

2021 Long-term capital positive aspects tax charges

Tax charge based mostly on revenue Single filers Head of family Married submitting collectively/qualifying widow Married submitting individually
0% $0 to $40,400 $0 to $54,100 $0 to $80,800 $0 to $40,400
15% $40,401 to $445,850 $54,101 to $473,750 $80,801 to $501,600 $40,401 to $250,800
20% $445,851 or extra $473,750 or extra $501,601 or extra $250,800 or extra

2022 Capital Gains Tax Rates

2022 Short-term capital positive aspects tax charges

Tax charge based mostly on revenue Single filers Head of family Married submitting collectively/qualifying widow Married submitting individually
10% $0 to $10,275 $0 to $14,650 $0 to $20,550 $0 to $10,275
12% $10,276 to $41,775 $14,651 to $55,900 $20,551 to $83,550 $10,276 to $41,775
22% $41,776 to $89,075 $55,901 to $89,050 $83,551 to $178,150 $41,776 to $89,075
24% $89,076 to $170,050 $89,051 to $170,050 $178,151 to $340,100 $89,076 to $170,050
32% $170,051 to $215,950 $170,051 to $215,950 $340,101 to $431,900 $170,051 to $215,950
35% $215,951 to $539,900 $215,951 to $539,900 $431,901 to $647,850 $215,951 to $323,925
37% $539,901 or extra $539,901 or extra $647,851 or extra $323,926 or extra

2022 Long-term capital positive aspects tax charges

Tax charge based mostly on revenue Single filers Head of family Married submitting collectively/qualifying widow Married submitting individually
0% $0 to $41,675 $0 to $55,800 $0 to $83,350 $0 to $41,675
15% $41,676 to $459,750 $55,801 to $488,500 $83,351 to $517,200 $41,676 $258,600
20% $459,751 or extra $488,501 or extra $517,201 or extra $258,601 or extra

State Capital Gain Taxes

On prime of federal capital positive aspects taxes, you might also need to pay state capital positive aspects taxes. How these taxes work, in addition to the tax charge, can range from state to state.

For instance, in 2021, Massachusetts charged 5% for long-term capital positive aspects and 12% for short-term capital positive aspects whereas Wyoming doesn’t cost capital positive aspects taxes in any respect.

When serious about the scale of your tax invoice, you should contemplate each federal and state taxes.

How to Calculate Your Tax Bill

To calculate your capital positive aspects tax invoice, you’ll want just a few items of data.

First, you should understand how a lot taxable revenue you have got in a yr. To calculate this, merely add the entire cash you’ve earned and subtract deductions equivalent to retirement account contributions and the usual deduction.

Then, you should calculate your short-term capital positive aspects. To do that, you’ll have to know the worth you paid for each funding you bought through the yr plus the worth at which you bought these investments. If that seems like so much, the excellent news is that your brokerage ought to ship you this info.

Subtract your short-term losses out of your short-term positive aspects to search out your internet short-term positive aspects for the yr. Multiply these positive aspects by the tax charge for the tax bracket you fall into to search out your short-term capital positive aspects tax for the yr.

👉 Note: You would possibly wind up shifting to the next tax bracket because of your capital positive aspects, wherein case a portion of the positive aspects get taxed on the larger charge, which may make the maths barely extra sophisticated. The larger charge will solely apply to revenue above the brink for that tax bracket.
Learn extra about how taxes work

If your losses exceed the positive aspects, you’ll be able to deduct as much as $3,000 of these losses out of your regular revenue to scale back your tax invoice. If you misplaced greater than $3,000, it’s possible you’ll carry these losses to future years to take deductions sooner or later.

👉 For instance: Imagine you have got $5,000 of short-term positive aspects in 2022 together with $3,000 in short-term losses. Your internet short-term positive aspects can be $2,000.
If your taxable revenue was $45,000 and also you’re submitting as a single particular person, you’d pay tax at a charge of twenty-two% on that $2,000 in positive aspects, for a complete tax invoice of $440 in your short-term positive aspects.

Next, calculate your internet long-term capital positive aspects in the identical manner. Subtract your long-term losses from the long-term positive aspects to search out the online long-term acquire. Multiply that quantity by the suitable tax charge in your revenue to search out your long-term capital positive aspects tax.

Like with short-term losses, you should use a internet long-term loss to offset common revenue, as much as a complete of $3,000 per yr throughout each lengthy and short-term losses.

👉 For instance: If you have got $10,000 in long-term positive aspects and $2,000 in long-term losses throughout 2022. Your internet long-term capital acquire is $8,000.
If your taxable revenue is $47,000 and also you’re submitting as a single particular person, you’d pay tax at a charge of 15% on these positive aspects, making your long-term capital positive aspects tax invoice $1,200.

Conclusion

To make an extended story brief, short-term capital positive aspects, which means these on investments held for lower than a yr, are taxed like regular revenue. If you maintain an funding for at the very least one yr, you pay a noticeably decrease tax charge on the positive aspects, however nonetheless, you must pay taxes.

Before you determine to promote an funding, contemplate the taxes you’ll pay on the proceeds and issue them into your calculations of acquire or loss.

To cut back the quantity of tax you pay in your investments, attempt to put money into tax-advantaged accounts like IRAs or 401(ok)s and maintain your investments for the long-term.