But you may still have gains after years of growth, and the profits could qualify for a 0% tax rate, depending on your earnings. Show
The thresholds may be higher than you expect — even six figures of joint income for a married couple, financial experts say. More from FA 100:Here's a look at more coverage of CNBC's FA 100 list of top financial advisory firms for 2022:
Many investors think of two rates for long-term capital gains, 15% and 20%, explained Dale Brown, board chair at Salem Investment Counselors in Winston-Salem, North Carolina, which ranked sixth on CNBC's 2022 FA 100 list. But there are actually four rates — 0%, 15%, 20% and 23.8%, with the 3.8% surcharge for higher earners. "I've had clients with low six-figure incomes who paid no taxes," Brown said. Here's how: The rates use "taxable income," calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income, which are earnings minus so-called "above-the-line" deductions. For 2022, you may qualify for the 0% long-term capital gains rate with taxable income of $41,675 or less for single filers and $83,350 or less for married couples filing jointly. Six-figure earners may qualify for the 0% rateWhile a couple making $100,000 may assume they don't qualify for the 0% long-term capital gains bracket, Brown said investors need to crunch the numbers. For example, let's say a retired couple has $30,000 in tax-exempt interest, $25,000 of regular income and $75,000 in long-term capital gains and dividends. Their gross income is $100,000 since it doesn't include the tax-exempt interest. After subtracting the standard deduction of $27,300 — $25,900 plus an additional $1,400 for a filer over 65 — they're left with $72,700 in taxable income, falling within the 0% long-term capital gains tax bracket for 2022. Part of your earnings may be in the 0% bracketEven if a couple's taxable income is above $83,350, part of their earnings may still fall into the 0% long-term capital gains bracket, Brown said. Let's say the same retired couple had $30,000 in tax-exempt interest, $25,000 of regular income and $100,000 in long-term capital gains and dividends.  watch now VIDEO3:1003:10 Investors reconsider 60/40 stock and bond strategy amid market downturn Squawk Box In this case, their gross income is $125,000 and taxable income is $97,700. Since the $27,300 standard deduction exceeds the $25,000 of regular income, the $97,700 is entirely long-term capital gains and dividends. This means $83,350 is taxed at the 0% rate and the couple owes 15% long-term capital gains taxes on the remaining $14,350. "That's the benefit of the 0% bracket," Brown said. Consider 'tax-gain harvesting' in the 0% bracketWhen the stock market is down, many investors focus on tax-loss harvesting, or using losses to offset other profits. But you may also explore harvesting gains if your assets are still up from previous years, said Cory Robinson, vice president and portfolio manager at Tom Johnson Investment Management in Oklahoma City, which ranked No. 30 on the FA 100 list. "The benefit is there are zero taxes, whether it's dividends or capital gains" as long as you're below the taxable income threshold, he said.
For investors in the 0% bracket, it's possible there's a chance to reduce taxes on future profits. Since taxes are based on the difference between the value upon sale and original purchase price, you can sell the profitable asset and repurchase to increase the purchase price. "That's the beauty of taking gains: You can immediately reinvest," Robinson said, explaining how investors don't need to worry about the so-called wash sale rule. Although the wash sale rule blocks harvested losses if you buy a "substantially identical" asset within the 30-day window before or after the sale, the same rule doesn't apply to gains, he said. Harvesting gains during lower-earning yearsWhether you're selling assets for income or leveraging a long-term tax strategy, there may be opportunities to harvest gains during lower-earning years, Brown said. For example, there may be an income gap if you retire but don't immediately receive Social Security, a pension or withdrawals from pretax retirement accounts, he said. You may also have lower taxable income during a year with a temporary job loss, Brown said. "The most important thing is the timing," Robinson added, explaining how it's critical to estimate your taxable income before attempting to harvest gains. Clarification: An earlier version of the story used a rounded number for the 2022 standard deduction that was slightly smaller. The story has been clarified with actual figures. What is the rate of capital gains for 2022?Long-term capital gains come from assets held for over a year. Short-term capital gains come from assets held for under a year. Based on filing status and taxable income, long-term capital gains for tax year 2022 (the same rate as in 2021) will be taxed at 0%, 15% and 20%.
How do you calculate capital gains tax?Your taxable capital gain is generally equal to the value that you receive when you sell or exchange a capital asset minus your "basis" in the asset. Your basis is generally what you paid for the asset. Sometimes this is an easy calculation – if you paid $10 for stock and sold it for $100, your capital gain is $90.
What is the current capital gains tax rate in the United States?This article has been updated for the 2022 tax year. The capital gains tax rate is 0%, 15% or 20% on most assets held for longer than a year. Capital gains taxes on assets held for a year or less correspond to ordinary income tax brackets: 10%, 12%, 22%, 24%, 32%, 35% or 37%.
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What is the federal capital gains tax rate for 2022
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