How Capital Gains Tax Rates Are Assessed

The timing of a purchase and sale, as well as your tax bracket and other factors will affect the capital gains tax rates that you'll pay.


This page:


  • Lists all capital gains tax rates

  • Explains why different rates are charged

  • Describes how the type of investment affects rates

Capital gains tax rates

There are six different capital gains tax rates: 5%, 8%, 10%, 20%, 25%, and 28%. Different tax rates apply to each type of gainful sale you have.

Rates depend upon three things:

  • your income or, in other words, the tax bracket you occupy,
  • how long you had the investment or asset
  • what type of asset it is - investment, collectible or real estate.


Let's go over each one of these variables separately.

The amount of time you've owned an investment or asset decides whether the gain is classified as long-term or short-term.

Short term gains are the gains produced by selling an investment or asset you've owned for a year or less. These are taxed at the same rate as your other income.

Long-term gains, which are the gains produced by selling and investment you've owned for more than a year, are taxed at lower rates. Depending upon your other income, long-term gains are subject to a capital gains tax between 8% and 28%.

Sidebar
With multiple selling points and different types of assets, figuring your capital gains tax rates can get complicated. But if you are prepared, and file electronically, the process becomes much simpler.

The type of investment can determine tax rates too

Investments are subjected to different tax rates depending on your income and how long you've owned them.

However, an automatic 28% tax rate is applied to any capital gain accrued from the sale of collectibles and a 25% tax rate is applied to the capital gain from the sale of real estate.


As you can see, you do have some control over these rates, so when you sell your investments you should take these influencing factors into consideration.

It is generally beneficial to hold onto your investments for longer than a year as to avoid paying a higher tax on them.

But don't make the mistake of thinking it is necessary to hold onto an investment that is losing money. If it is losing money, there will be no gain, and therefore there will be no tax.


Next: how the tax basis and selling method of assets affect capital gains tax rates.

Related IRS publications

You can get more information about capital gains tax rates directly from the IRS, in the form of IRS Publication 550.

If you file a paper return, you will also have to fill out Schedule D and possibly Schedule D-1. If you file electronically, all this will be taken care of for you electronically.

Note: you will need an Adobe Acrobat Reader to view these publications, which you can get here. (But you probably already have it.)