In addition to the federal capital gains tax rates, your capital gains will also be subject to state income taxes. Many states do not have separate capital gains tax rates. Instead, most states will tax your capital gains as ordinary income subject to the state income taxes rates.
Tax Rate on Short-Term Capital GainsCapital gain income from assets held one year or less is taxed at the ordinary income tax rates in effect for the year, ranging from 10% to 39.6% for the year 2013.
Tax Rate on Collectible AssetsLong-term investments in collectibles are taxed at a flat 28%. Short-term investments in collectibles are taxed as short-term capital gains at your ordinary income tax rates. Collectibles include the following items:
- precious metals,
- precious gems,
- rare rugs,
- alcoholic beverages, and
- fine art.
Tax Rate on Recaptured Depreciation of Real PropertyReal property that has been depreciated is subject to a special depreciation recapture tax. A special 25% tax rate applies to the amount of gain that is related to depreciation deductions that were claimed or could have been claimed on a property. The remainder of the gain will be taxed at ordinary rates or long-term gain rates, depending on how long the property was held. For more details on depreciation recapture, refer to Publication 544, Sales and Other Dispositions of Assets, chapter 3, section on Depreciation Recapture.
Business AssetsFixed assets used in your business are taxed as ordinary gains. Business assets include all furniture, equipment, and machinery used in a business venture. Examples include computers, desks, chairs, and photocopiers. Ordinary gains are reported on IRS Form 4797. Refer to Publication 544, Sales and Other Dispositions of Assets for further details about selling business assets.
Small Business StockCapital gains and losses on small business stock may qualify for preferential tax treatment. Gains may be partially excluded under Section 1202, if the company had total assets of $50 million or less when the stock was issued. Losses may be treated as ordinary losses up to $50,000 per year under Section 1244, if the company had total paid-in capital of $1 million or less.
Small business investors can request that companies certify their stock as qualifying under Section 1202, Section 1244, or both, at the time they make an investment in the company.
Gains on small business stock are taxed at 28% after any exclusion. Ordinary losses on Section 1244 stocks can reduce other ordinary income, such as wages.
For more details on these two provisions for small business stock, refer to Publication 550, Investment Income and Expenses, chapter 4, especially the section on Gains on Qualified Small Business Stock.
Tax Rate on Long-Term Capital Gains and Qualified Dividend IncomeCapital gain income from assets held longer than one year are generally taxed at special long-term capital gains tax rates. The rate that applies depends on which ordinary income tax bracket you fall under.
- 0% applies to long-term gains and dividend income if a person is in the 10% and 15% tax brackets,
- 15% applies to long-term gains and dividend income if a person is in the 25%, 28%, 33%, or 35% tax brackets, and
- 20% applies to long-term gains and dividend income if a person is in the 39.6% tax bracket.
Tax Rates on Dividend IncomeDividends are classified either as ordinary dividends or as qualified dividends. Ordinary dividends are taxed at ordinary tax rates for whatever tax bracket you are in. Qualified dividends are taxed at the long-term capital gains tax rates of zero percent, 15% or 20% rates. To be eligible as a qualified dividend, the dividends must be from a domestic corporation or a qualifying foreign corporation and you must hold the stock "for more than 60 days during the 121-day period that begins 60 days before the ex-dividend date" (Publication 550).
Capital Gains Tax Rates
|Type of Asset||Tax Rate on Short-Term Sales||Tax Rate on Long-Term Sales||Unearned Medicare Contribution Surtax|
|Collectibles||ordinary tax rates||28%||3.8%|
|Depreciation recapture||ordinary tax rates||25%||3.8%|
|Qualified small business stock||ordinary tax rates||28% after exclusion||3.8%|
|Other capital assets||ordinary tax rates||0%, 15%, or 20%||3.8%|