What is the tax rate for long term capital gains? And the tax rate for short term?

Question

I have a few investments over a year old, and want to know how much taxes I'll have to pay if I close out of these investments. I also want to know how much I'll have to pay on a few short term. Please let me know the tax percentages. If this matters, I'm based in New York. Please include references.

Answer 1

The following is for Federal tax purposes only. I do not have a good grasp of NY State or NY City income tax law.

When a security (stock, mutual fund, bonds, etc.) is sold, the gain is considered long-term capital gain (LTCG) if it was held more than one year or short-term capital gain (STCG) if it was held for one year or less. Of course, you could also have a long-term capital loss (LTCL) or a short-term capital loss (STCL) if you sell for less than your investment or "basis".

At the end of the year, you add all your gains and losses together. You will end up with one of the following situations:

1) If you have a net loss, you write it off against your other income up to $3000. So, if you made $50,000 on your W-2 and had a $2000 LTCG and a $7000 STCL, your total capital loss is $5,000 (+$2000-$7000). Of that, $3,000 will go against your regular income of $50,000 to give you an new income of $47,000. The remaining $2,000 loss will carry into next year and be combined with your next year's capital gains/losses.

2) If you have a net gain composing of STCG and LTCL, the net gain (being short-term) is just like ordinary income and is taxed at your marginal tax rate. It is taxed just as if it were additional income in box 1 of your W-2.

3) If you have a net gain composing of LTCG and STCL, the net gain (being long-term) is taxed at 15% if your marginal tax rate is in the 25% bracket or higher, or it is taxed at 5% if your marginal tax rate is below the 25% bracket.

4) If you have both a LTCG and STCG, the STCG portion is taxed at your marginal rate (just like #2) and your LTCG portion is taxed at 15% or 5% (just like #3).

This is not a guess....I know for sure. Hope this helps :)

Answer 2

TaxMan is correct. But see here for more information as there are 2 additional tax rates -- 25% and 28% -- though those will probably not apply in your case: http://www.irs.gov/pub/irs-pdf/p544.pdf

Answer 3

Federal tax rate for long term gains is 20%. Short term is just ordinary income - that is, you'll just add those gains to your other income, and figure out the tax as usual.