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2015 Capital Gains Tax Rates

ARIELLE O'SHEA
(HTTPS://WWW.NERDWALLET.COM/BLOG/AUTHOR/AOSHEA/)

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When it comes to investing whether in the markets or in a material

item like a home you want the value of what you bought to go up. But
that uptick in value also comes with a downside: capital gains taxes.
Capital gains taxes are levied on the difference between what you paid
for an asset (also known as your basis) and what you sell the asset for,
and theyre divided into short-term and long-term gains based on the
amount of time you owned the asset. Short-term capital gains tax rates
are equal to your ordinary income tax. Tax rates on long-term capital
gains generally assessed on investments youve held for longer than a
year are much more generous; many taxpayers qualify for a 0% tax
rate.
Heres a brief overview of the rates in effect for this year, and the
income levels that put you into each tax bracket:
2015 Capital Gains Tax Rates
Single

Married
Filing
Jointly

Married
Filing
Separately

Head of
Household

Tax
Bracket

ShortTerm
Capital
Gains
Rate

LongTerm
Capital
Gains
Rate

Up to

Up to

Up to

Up to

10%

10%

0%

$9,225

$18,450

$9,225

$13,150

$9,225
to
$37,450

$18,451
to
$74,900

$9,226 to
$37,450

$13,151 to
$50,200

15%

15%

0%

$37,450

$74,900

$37,451
to
$90,750

$74,901
to
$151,200

$37,451 to
$75,600

$50,201
to
$129,600

25%

25%

15%

$90,751

$151,201

$75,601 to

$129,601

28%

28%

15%

to
$189,300

to
$230,450

$115,225

to
$209,850

$189,301
to

$230,451
to

$115,226
to

$209,851
to

33%

33%

15%

$411,500

$411,500

$205,750

$411,500

$411,501
to
$413,200

$411,501
to
$464,850

$205,751
to
$232,425

$411,501
to
$439,000

35%

35%

15%

$413,201
and over

$464,851
and over

$232,426
and over

$439,001
and over

39.6%

39.6%

20%

As you can see, you can be in highest ordinary income tax bracket
39.6% and still pay no more than 20% in long-term capital gains taxes.
Those in the 10% and 15% brackets pay no tax on long-term capital gains.
Some investors may also be liable for the Net Investment Income Tax, an
additional 3.8% that applies to whichever is smaller: your net investment
income, or the amount by which your modified adjusted gross income
exceeds the threshold amounts listed below. For more on this, check out
the IRSs explanation (http://www.irs.gov/Individuals/Net-InvestmentIncome-Tax) and this Q&A (http://www.irs.gov/uac/Newsroom/NetInvestment-Income-Tax-FAQs). Here are the income thresholds that
might make investors subject to this additional tax:
Single or head of household: $200,000
Married filing jointly: $250,000
Married filing separately: $125,000

How capital gains are calculated

Capital gains taxes can apply on everything from investments, such as

stocks or bonds, to real estate (though usually not your home), cars,
boats and other tangible items. To put it simply, the money you make on
the sale of any of these items is your capital gain. Money you lose is a
capital loss. Investment capital losses can be used to offset gains. For
example, if you sold one stock for a $10,000 profit this year and sold
another at a $4,000 loss, youll only be taxed on capital gains of $6,000.
The difference between your capital gains and your capital losses is
called your net capital gain. If your losses exceed your gains, you can
actually deduct the difference on your tax return, up to a limit of $3,000
per year ($1,500 for those married filing separately).
Finally, it should be noted that the chart of capital gains tax rates above
applies to most assets, but there are some noteworthy exceptions.
Long-term capital gains on so-called collectible assets are generally
taxed at 28%; these are things like coins, precious metals, antiques, and
fine art. Short-term gains on such assets are still taxed at the ordinary
income tax rate.

How to minimize capital gains taxes

Its clear that whenever possible, you want to hold an asset for a year or
longer so you can qualify for the long-term capital gains tax rate, since it
is significantly lower for most assets. But there are several other steps
you can take to lower your tax burden:
EXCLUDE HOME SALES

The IRS has a provision that can help homeowners avoid capital gains on
home sales, since this is one of the biggest investments most people
make. To qualify, you must have owned the home for at least two years
in the five year period leading up to the sale, and used the home as your
primary residence for two years in that same five-year period. You also
must not have excluded another home from capital gains in the two-year
period before the home sale. If you meet those rules, you can exclude up
to $250,000 in gains from a home sale if youre single, and up to
$500,000 if youre married filing jointly.

REBALANCE WITH DIVIDENDS

Dividends
(http://www.irs.gov/publications/p550/ch01.html#en_US_2014_publink100010066)
are payments you receive for owning stocks or similar investments. They
may be taxed similar to capital gains, depending on whether they are
qualified or nonqualified. (Whats the difference? Qualified dividends are
from investments held for a certain amount of time and are taxed like
long-term capital gains; nonqualified dividends are taxed like short-term
capital gains at the investors ordinary income tax rate.)
One way to minimize taxes: Rather than reinvest dividends in the
investment that paid them, rebalance
(http://www.nerdwallet.com/blog/investing/2013/how-to-rebalance401k-portfolio/) by putting that money into your underperforming
investments. (Typically, you would rebalance by selling securities that
are doing well and putting that money into those that are
underperforming. But using dividends to invest in underperforming
assets will allow you avoid selling strong performers and thus avoid
any capital gains that would come from the sale.)
USE TAX-ADVANTAGED ACCOUNTS

These include 401(k) plans, IRAs and 529 accounts, in which the
investments grow tax-free or tax-deferred. That means you dont have
to pay capital gains if you sell investments within these accounts. Roth
IRAs and 529s in particular have big tax advantages: Qualified
distributions from those are tax-free; in other words, you dont pay any
taxes on investment earnings. With traditional IRAs and 401(k)s, youll
pay taxes when you take distributions from the accounts in retirement. If
youre interested in opening an IRA, check out NerdWallets list of best
account providers (http://www.nerdwallet.com/blog/investing/best-iraaccount-providers/).
CARRY LOSSES OVER

If your net capital loss exceeds the limit you can deduct for the year, the
IRS allows you to carry the excess into the next year, deducting it on
that years return.

CONSIDER A ROBO-ADVISOR

Robo-advisors (http://www.nerdwallet.com/blog/investing/best-roboadvisors/) are online services that manage your investments for you
automatically. They often include tax strategy, including tax-loss
harvesting, which involves selling losing investments to offset the gains
from winners.

The bottom line

Capital gains taxes can add a considerable amount to your tax bill, even
if they are from long-term gains. If you think youll be subject to them,
its wise to consult an accountant or tax advisor when filing taxes, as he
or she can give you tailored advice and information about minimizing
the burden.
More from NerdWallet:
Best Online Brokers (https://www.nerdwallet.com/investing/bestonline-broker/)
Best Robo-Advisors
(http://www.nerdwallet.com/blog/investing/best-robo-advisors/)
Investing in ETFs and Index Funds
(http://www.nerdwallet.com/blog/investing/etf-index-funds-vsmutual-funds/)
Arielle OShea is a staff writer at NerdWallet, a personal finance website.
Email: aoshea@nerdwallet.com (mailto:aoshea@nerdwallet.com). Twitter:
@arioshea (https://twitter.com/arioshea).

Image via iStock.