Wondering what capital gain rates will apply to your 2013 federal income tax return? The rate you pay on gain from the sale of stocks or other assets depends on the length of time you owned the asset, the type of asset, and your taxable income.
- Length of time. The “holding period” determines whether an asset is classified as short-term or long-term. As you probably know, short-term is presently defined as a year or less, and short-term assets are typically taxed at your ordinary federal income tax rate. In contrast, the capital gain rate for assets held more than a year is generally lower than your ordinary rate.
Measuring the holding period can be straightforward. For example, when you purchase publicly traded stocks, the holding period is measured by trade date. You start counting the day after you purchase the stock and stop on the date of sale.
Assets you acquire in other ways, such as by gift or inheritance, follow different rules. For gifts, your holding period can include the ownership period of the person who gave you the gift. Inherited assets have a long-term holding period, no matter how quickly you sell them.
- Type. Special capital gain rates apply to specific assets, such as art or coin collections, certain small business stock, and some depreciable real estate.
- Income. When you’re in the 10% or 15% income tax bracket, the maximum rate you’ll pay on long-term capital gains is 0%. For 2013, the 15% bracket ends at $72,500 when you’re married filing jointly ($36,250 when you’re single).
If your income exceeds $450,000 ($400,000 for singles), the maximum capital gain rate is 20%. When you’re in between, you’ll generally pay 15% on gains.
Please contact us if you sold investments or other assets in 2013 and have questions about the tax issues.