Capital Gains Tax Rate: How Much Is It?

Capital gains are the profit you make when you sell a capital asset for more money than it cost you. When you sell a capital asset, such as real estate, furniture, precious metals, vehicles, collectibles or major equipment at a profit, you have a capital gain that is subject to tax.

The long-term capital gains tax rate for tax year 2022, for assets held for more than a year, is 0% for most individuals who earn less than $41,675, 15% for those who earn $41,675 to $459,750 and 20% for people earning more than $459,750. For assets held for a year or less, your capital gains are taxed at your regular income tax rate, which is 10% to 37% depending on your income.

You can avoid paying capital gains taxes on some assets. If you can’t completely avoid the taxes, there are ways to minimize the amount of taxes you pay. Even if you’re used to paying a high capital gains tax rate, double-check your figures when you file your tax-year 2022 tax return . If you’re in a lower tax bracket this year than you were in 2021, you may find yourself paying no tax at all on your capital gains when you file your return in April 2023.

What Is the 2022 Capital Gains Tax Rate?

The capital gains tax rate for tax year 2022 ranges from 0% to 37%, depending on your income and whether you held the assets for more than a year. For most people, the long-term capital gains tax does not exceed 15%. This 15% rate applies to the following:

• Single individuals who earn $41,675 to $459,750
• Married individuals filing separately who earn $41,675 to $258,600 
• Married joint filers who earn $83,350 to $517,200
• Heads of household who earn $55,800 to $488,500

In some cases, capital gains are taxed at a greater rate. Individuals and couples with an income that exceeds the limits of the 15% tax rate are subject to a 20% tax rate. Individuals and couples with an income below the minimum for the 15% capital gains tax pay 0%.

A 28% tax rate applies to these capital assets, regardless of how long you held them:

• Taxable part of a gain resulting from the sale of a Section 1202 qualified small business stock
• Net capital gains from the sale of collectibles like coins or art

Any unrecaptured gain from the sale of Section 1250 real property is taxed at a maximum 25% rate.

Short-term capital gains are taxed as ordinary income according to the taxpayer’s tax bracket, which ranges from 10% to 37% depending on your income.

One exception to capital gains tax rules is the sale of your primary home. Up to $250,000 — $500,000 for married joint filers — is excluded. To qualify, you must have both owned the home and lived in it as your primary home for at least two of the previous five years. You can take the exclusion one time during a five-year period.

Do Capital Gains Count as Income?

Capital gains are included in your taxable income, but they are not part of your ordinary income. This is an important distinction, because capital gains and ordinary income are taxed at different rates if the capital assets were held for more than a year.

Capital gains can increase your adjusted gross income, which can phase you out of itemized deductions, tax credits, Roth IRA eligibility and IRA contribution deductions. However, they do not push you into a higher tax bracket because they are taxed before your ordinary income.

In Practice

Say, for example, that you and your spouse file jointly and earned $150,000 in 2022. During this period, you also sold a rental property and have a long-term capital gain of $50,000. In this example, the capital gain is taxed at a 15% rate. Then your income is taxed at a maximum rate of 22%.

How To Calculate Your Capital Gains

Curious to see what you might owe on capital gains? Follow these steps to calculate your net capital gain or net capital loss.

Steps To Calculate Capital Gains

1. Gather the following information:
   • Date you acquired the asset
   • Date you sold the asset
   • The proceeds from the sale of the asset
   • The asset’s basis — the cost of the asset to you
2. Sort the assets into two categories: short-term and long-term.
3. Subtract each asset’s cost from the amount you sold it for.
   • If you made a profit, you have a net gain and will pay taxes on that income.
   • If you sell the asset for less than what you purchased it for, you have a net loss. In some cases, you can deduct the loss.
4. Record your losses and gains on IRS Form 8949: Sales and Other Dispositions of Capital Assets before transferring to Schedule D.

Each person’s tax situation is different, and there are many factors to consider. For this reason, you should speak to a tax professional or financial advisor who can explain your options and help you determine the best solution for your personal needs.

What Is a Short-Term Capital Gains Tax?

You experience a short-term capital gain when you acquire a capital asset and sell it for a profit after you’ve owned it for one year or less. This is considered ordinary income, and the gain is taxed based on your traditional tax bracket.

The ordinary tax rates for 2022 taxable income filed in 2023 are listed below.

In Practice

If you buy a collectible car for $10,000 in March and sell it for $15,000 in September, you have a capital gain of $5,000. Because you owned the car for only six months, it is a short-term capital gain. You have to pay the short-term capital gains tax, which is the same as your regular income tax rate.

What Is a Long-Term Capital Gains Tax?

If you own a capital asset for at least one year and then sell it for a profit, you have a capital gain. Long-term capital gains are taxed a lower rate than short-term gains.

The long-term capital gains tax rate depends on your taxable income.

As an example, if you purchased a vintage dining set in 2010 for $500 and sold it in 2022 for $2,500, you have a capital gain of $2,000. If you bought that same table in 2022 and sold it the same year, you’d be taxed at the higher short-term capital gains rate.

Can Taxes on Capital Gains Be Avoided?

It may not be possible to avoid paying capital gains taxes indefinitely, but there are ways to minimize the tax cost.

Hold On to Assets

The first step is to hold on to assets long enough to make them long-term capital assets, which have a lower tax rate than short-term assets.

Rebalance With Dividends

Periodically rebalancing your portfolio is necessary, because market conditions and your needs both change over time. However, selling appreciated investments produces capital gains. You can rebalance by cashing out dividends instead of reinvesting them. Then use the cash to invest in other products.

Consider a Robo-Advisor

A robo-advisor, or automated brokerage account, can also help you mitigate capital gains taxes. You can set your account preferences to automatically rebalance the portfolio and implement tax-loss harvesting to reduce the amount of your capital gains on the account.

Carry Losses Over

You can offset gains by carrying losses over. By doing so, you can get rid of unwanted or unneeded assets and reinvest them in similar products. Your loss carryover is limited to the lower of $3,000 or the total amount of your loss. When using this method, consider focusing on short-term capital gains that are taxed at a higher rate.

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John Csiszar and Daria Uhlig contributed to the reporting for this article. 

Information is accurate as of Dec. 5, 2022.