As with most tax laws these days, seems there is no simple answer anymore. Prior to 2012 we could tell you ordinary income tax rates for short term capital gains and a 15% tax for long term capital gain and for the most part be done- all that has changed for 2013.
Short term capital gains:
If you hold and sell an asset or investment for less than a year, then you are looking at being taxed at ordinary income tax rates, which range from 10 to 39.6 % depending where your total income ends up for the year. In addition to help finance the Affordable Care Act, more commonly known as Obama Care, there is an investment tax surcharge of 3.8% if your income is $200,000 if you are single and $250,000 if you are married. So it is possible that you could reach a combined tax rate of 43.4%. So it is important to plan your strategy if you are doing to sell an investment.
Long term capital gains:
The long term capital gain rate is the most affected starting in 2013. A long term capital gain is an asset or investment that is held for over a year- which we like to refer to as holding a year and a day before you sell. If you sell after a year, then you pay a capital gains tax rate of 15% if your taxable income is between $36,251 and $400,000 if you are single and $72,501 and $450,000 if you are married. If you go above the 400,000 and 450,000 ranges respectively, then you are looking at a 20% long term capital gains rate.
In addition, the 3.8% investment tax mentioned above still applies for the long term capital gains at the respective $200,000 and $250,000 income amounts as well. So depending on your income and filing status you could be looking at a total long term capital gains rate of 18.8% or 23.8%.
To minimize your taxes it is important to consider your total income when you are selling assets or investments. As with all tax planning, everyone’s situation is unique so please feel free contact us to discuss your specific situation and how to minimize your taxes.
