How to calculate capital gains taxes

Profits on assets held for one year or less are considered short-term capital gains and taxed at ordinary income tax rates ranging from 10 percent to 37 percent. Profits from assets you

owned for more than a year are long-term capital gains and get more favorable tax treatment. The net capital gains tax for most individuals is no higher than 15 percent. However, the lower

your taxable income, the lower your long-term capital gains rate will be. 0 PERCENT CAPITAL GAINS RATE: In 2024, you won't pay taxes on long-term gains if your income is $47,025 or

less for a single filer, $94,050 or less for a married couple filing jointly or $63,000 or less if you file as head of household. 15 PERCENT CAPITAL GAINS RATE: The 15 percent tax kicks in

for single filers with taxable income of more than $47,025 but less than or equal to $518,900; more than $94,050 but less than or equal to $583750 for married couples filing jointly; more

than $63,000 but less than or equal to $551,350 for head of household; or more than $47,025 but less than or equal to $291,850 for married people filing separately. 20 PERCENT CAPITAL GAINS

RATE: The higher 20 percent capital gains rate is levied when your taxable income exceeds the upper thresholds for the 15 percent rate. So, holding on to an asset for more than a year is

essentially a tax-reduction strategy. Here’s an example: Let’s say you’re a married couple with $150,000 in taxable income. Your marginal tax rate is 22 percent, so if you sell a stock

you’ve owned for less than a year at a $10,000 gain, you’ll pay $2,200 in taxes. But if you held that same stock for at least a year before selling it, you’d pay $1,500 because of the lower

rate for long-term capital gains. Just by holding the asset for more than a year, you increase your after-tax profit by $700. The tax savings are even greater for higher earners. If

you're in the 37 percent tax bracket, that $10,000 gain on a short-term asset will cost $3,700 in taxes. Because of your income, your tax rate on a long-term gain would be higher than

in the prior example — 20 percent instead of 15 percent — but you'd save $1,700 in capital gains taxes compared to a short-term sale. “If you hold for one year and one day, you get a

completely different tax bill than if you held it for one less day,” says Hayden Adams, director of tax and wealth management for the Schwab Center for Financial Research. Capital gains from

stock and other asset sales are usually shown on Form 1099-B sent to you by your broker, bank or fund company. NET INVESTMENT INCOME TAX The tax hit is even bigger on high earners who also

have hefty investment income from assets such as interest, dividends and capital gains. If your modified adjusted gross income (MAGI) tops $200,000 (single or head of household), $250,000

(married filing jointly) or $125,000 (married filing separately), you may also owe a 3.8 percent net investment income tax, or NIIT, on top of capital gains you have to pay. “It’s a tax on

investment income, so if you don’t have any investment income, you don’t owe the NIIT tax,” explains Tim Steffen, director of advanced planning at Baird Private Wealth Management. This tax

was put in place in 2013 to help fund the Affordable Care Act. The 3.8 percent add-on tax applies only to your total net investment income or the portion of your MAGI that goes over the

income threshold for your filing status, whichever is less. (It doesn’t apply to gains on the sale of your personal residence.)