Are your investments gaining in value? Then you'll want to understand how the capital gain tax works. Here's a refresher.
- What is a capital gain? For tax purposes, you have a capital gain when the amount you sell an asset for exceeds your basis in that asset. An example: when you buy stock for $50 and sell for $70, your gain is $20.
Getting your basis right is important — though not always simple. If you purchase an asset, determining your basis is fairly easy. But if you receive an asset by gift or through an estate, your basis can be more difficult to determine.
- What are the capital gain tax rates? For 2010, capital gain tax rates range from zero to 35%. The actual rate you'll pay depends on how long you own an asset, the type of asset, and your federal income tax bracket.
Short-term capital gains — assets you've owned a year or less when you sell — are taxed at regular income tax rates, which can be as high as 35%.
Assets you sell in 2010 after owning them more than a year are generally subject to tax at a 15% rate. You may qualify for a zero percent rate — no tax at all on the capital gain — when you're married filing jointly with taxable income of $68,000 or less ($34,000 for singles).
You'll pay a higher rate on some types of assets. For instance, collectibles are taxed at a maximum rate of 28%.
Capital gains offer excellent opportunities for tax planning because you can usually time when you'll pay the tax by choosing how long to hold an asset and when to sell. Please call to discuss how you can benefit from year-end planning strategies.
