Source: Kipplinger
The federal income tax rate that applies to gains from the sale of stocks, mutual funds or other capital assets depends on how long you held the asset and your taxable income. Gains from the sale of capital assets that you held for at least one year, which are considered long-term capital gains, are taxed at either a 0%, 15% or 20% rate.
However, which one of those long-term capital gains rates – 0%, 15% or 20% – applies to you depends on your taxable income. The higher your income, the higher the rate. If you’re working on your 2021 tax return, here are the capital gains taxable income thresholds for the 2021 tax year:
2021 Longer-Term Capital Gains Tax Rate Income Thresholds
| Capital Gains Tax Rate |
Taxable Income (Single) |
Taxable Income (Married Filing Separate) |
Taxable Income (Head of Household) |
Taxable Income (Married Filing Jointly) |
|---|---|---|---|---|
| 0% | Up to $40,400 | Up to $40,400 | Up to $54,100 | Up to $80,800 |
| 15% | $40,401 to $445,850 | $40,401 to $250,800 | $54,101 to $473,750 | $80,801 to $501,600 |
| 20% | Over $445,850 | Over $250,800 | Over $473,750 | Over $501,600 |
The income thresholds for the capital gains tax rates are adjusted each year for inflation. To see how the thresholds will change from 2021 to 2022, here are the figures for the 2022 tax year:
2022 Capital Gains Tax Rate Thresholds
| Capital Gains Tax Rate |
Taxable Income (Single) |
Taxable Income (Married Filing Separate) |
Taxable Income (Head of Household) |
Taxable Income (Married Filing Jointly) |
|---|---|---|---|---|
| 0% | Up to $41,675 | Up to $41,675 | Up to $55,800 | Up to $83,350 |
| 15% | $41,675 to $459,750 | $41,675 to $258,600 | $55,800 to $488,500 | $83,350 to $517,200 |
| 20% | Over $459,750 | Over $258,600 | Over $488,500 | Over $517,200 |
The tax rate on short-term capitals gains (i.e., from the sale of assets held for less than one year) is the same as the rate you pay on wages and other “ordinary” income. Those rates currently range from 10% to 37%, depending on your taxable income. To see what rate you’ll pay, see What Are the Income Tax Brackets for 2021 vs. 2022?
Surtax on Net Investment Income
There’s an additional 3.8% surtax on net investment income (NII) that you might have to pay on top of the capital gains tax. (NII includes, among other things, taxable interest, dividends, gains, passive rents, annuities, and royalties.) You must pay the surtax if you’re a single or head-of-household taxpayer with modified adjusted gross income (AGI) over $200,000, a married couple filing a joint return with modified AGI over $250,000, or a married person filing a separate return with modified AGI over $125,000. Use Form 8960 to calculate the surtax.
Under the current version of the Build Back Better Act, which is being considered by Congress, the surtax would be expanded to cover NII derived in the ordinary course of a trade or business for joint filers with modified AGI over $500,000, single or head-of-household filers with modified AGI over $400,000, and married people filing a separate return with a modified AGI over $250,000. The proposed legislation would also clarify that the surtax doesn’t apply to wages on which Social Security and Medicare payroll taxes (i.e., FICA taxes) are already imposed. The Build Back Better Act was passed by the House in December, but it has stalled in the Senate.