Capital Gains Tax: What You Need to Know for 2023 and Beyond
Understanding Capital Gains
Capital gains are the profits you make when you sell an asset, such as stocks, bonds, or real estate, for more than you paid for it. These gains are taxed differently depending on how long you have owned the asset.
Long-Term vs. Short-Term Capital Gains
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Long-term capital gains are taxed at lower rates than ordinary income if you have held the asset for more than one year. *
Short-term capital gains are taxed as ordinary income if you have held the asset for one year or less.
2023 and 2024 Capital Gains Tax Rates
The applicable tax rates for long-term capital gains for 2023 (filed in 2024) and 2024 tax years are as follows: | Taxable Income | Tax Rate | |---|---| | $0 - $41,675 | 0% | | $41,676 - $459,750 | 15% | | Over $459,750 | 20% |
Biden's Proposed Capital Gains Tax Increase
President Biden's FY25 budget proposal would nearly double the long-term capital gains tax rate to 39.6% for taxpayers with an AGI of $1 million or more. This proposed increase is still under consideration by Congress and may change before becoming law.
Capital Gains Tax Calculation
To calculate your capital gains tax, you need to do the following: 1. Determine the selling price of the asset. 2. Subtract the purchase price of the asset. 3. Calculate the amount of your gain. 4. Compare the holding period of the asset to determine if the gain is long-term or short-term. 5. Apply the appropriate tax rate based on your income and the holding period.
Conclusion
Understanding capital gains tax is crucial for investors and taxpayers. By staying informed about the current and proposed tax rates, you can minimize your tax liability and make informed financial decisions.
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