2012 vs 2013 Capital Gains Tax Rates – Short and Long Term

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With legislation now in place to avert the fiscal cliff many investors will be breathing a sigh of relief as the tax rates on capital gains, dividends on investments did not rise as much as expected.  However under the fiscal cliff deal investment income will still be taxed at 15 percent. Higher income earners, those making more than $400,000 ($450,000 for couples), will however pay 20 percent. This does not include the 3.8 percent health care surtax which also applies to investment income for higher income earners.

What is a Capital Gain or Loss? When you sell a capital asset like a stock or a home you own, the difference between the amount you sell it for and what you paid for it (cost basis) is classified as a capital gain or a capital loss. Capital gains and losses are further classified as long-term or short-term, depending on how long you held the investment before you sold it. If you have held the asset more than one year, your capital gain or loss is classified as long-term. If you held the asset for one year or less, your capital gain or loss is considered short-term. Based on the duration of asset ownership and the tax filers personal tax rate, we can calculate their capital gains tax rate.  For 2012 this is shown in the table below. In 2013, the rates wills stay the same, expect for those earning more than $400,000 ($450,000 for couples) who will face a 20% rate for long term gains. Short term gains will be taxed at 2013 marginal tax rates levels.

2011-2012 Capital Gains Tax Rates

Short-term capital gains are taxed like ordinary income at tax rates up to 35% for 2012 (and 39,6% in 2013). For example if Julia bought shares in Apple (AAPL) in February 2012 and sold them in November 2012, her gain or loss on the investment will be classified as short-term.

Long-term capital gains (assets held for more than one year) are taxed at 0% for taxpayers in the 10% and 15% tax brackets and 15% for taxpayers in the 25%, 28%, 33%, and 35% tax brackets. The 0% tax rates for those in the 10% and 15% federal income tax brackets was a special provision in the bush-era tax cuts which were extended to 2013.

If your capital losses are more than your capital gains, you can claim a capital loss deduction in your tax filing. Your allowable deduction is $3,000 ($1,500 if you are married and filing separately) and can be claimed against your ordinary income. There are various exceptions and special provisions when it comes to the treatment of capital gains or losses and you should consult IRS Publications 17 and 550 for more details.

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{ 10 comments… read them below or add one }

Stan April 2, 2013 at 9:06 pm

Is the profit of selling back foriegn currency to be seen as capitol gains?

Reply

Andy (Author) April 3, 2013 at 9:17 pm

If you are trading foreign exchange (fx) currency to make money then yes the income (gain) from trading is taxable income and is reported as capital gain – long or short term depending how long you held the foreign currency – more. Gains on a personal (e.g for a trip or to send money overseas) foreign currency transaction because of changes in exchange rates, you do not have to include that gain in your income unless it is more than $200. If the gain is more than $200, report it as a capital gain.
If you held the foreign currency more than a year – the gain will be taxed at reduced rate – not more than 15%. If you held the currency less than a year – the gain will be taxed at your regular tax rate. State taxes are extra.

Reply

ron r February 26, 2013 at 4:49 pm

My wife received an inheritance from her family trust that included stock. The value of those stocks
is known as of the date of death which were then cashed in this year. Is the capital gain taxed as
short term , long term or become incorporated into our taxable income total?

Reply

Chris June 9, 2013 at 10:06 am

Your clcok starts ticking on the date of transfer. Because you have a stepped up basis as of the date of death the you would refrence that date in determining the short of long term characterization of any gains for those holdings.

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DUANE February 6, 2013 at 4:42 pm

In 2012 I sold my interest in an office building I owned for 35 years. My personal income tax rate is at 10%. I roughed out schedule 8949, schedule D and the 1040. The experts indicate that I should not have to pay tax on the gain, yet I find nothing in the forms or instructions that so indicate. What have i overlooked.

Reply

patricia September 22, 2012 at 1:46 pm

Hello,
I have an insurance policy that I recently found out I can take the cash value and keep the paid up insurance. We are in the 15% tax bracked at this time-would I have to pay capital gains tax on this cash value?

Reply

Steve F. December 3, 2012 at 4:17 pm

The answer is no. The cash taken out in the form of a loan will be tax free as long as the contract is paid up and does not lapse.

I would be happy to help with this if interested. Please respond.

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John C March 8, 2012 at 1:44 am

Hi, I need some help here. I am in the 10% or less tax bracket. And I just walked through Form 1040, 8949 and Schedule D. Having gone through the steps/instructions on those forms/schedule several times, I still can not find the effective 0% tax rate for my long term capitcal gain on a piece of land. Did I miss something ?

Reply

Barbara February 8, 2012 at 9:36 am

What is the impact if the bush tax cuts expire. Will the CGT go up?

Reply

Judy Wetzel May 21, 2011 at 5:00 am

I have Iraqi Dinar that I would like to cash in for USD. What would a Iragi Dinar be worth as USD.

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