A Taxing Story: Capital Gains and Losses

Chris Rock once remarked, “You don’t pay taxes, they take taxes.”¹ That applies not only to income, but also to capital gains.

Capital gains result when an individual sells an investment for an amount greater than his or her purchase price. Capital gains are categorized as short-term (a gain realized on an asset held one year or less) or as long-term (a gain realized on an asset held longer than one year).

Long-Term vs. Short-Term Gains

Short-term capital gains are taxed at ordinary income tax rates, while long-term gains are taxed at a lower rate, based on an individual’s marginal income tax bracket.

If you are in the… your long-term capital gains rate will be…
10%-15% tax bracket 0%
25%-35% tax bracket 15%
39.6% tax bracket 20%

It should also be noted that taxpayers whose adjusted gross income is in excess of $200,000 (single filers) or $250,000 (joint filers) may be subject to an additional 3.8% tax as a net investment income tax.²

Also, keep in mind that the long-term capital gains rate for collectibles and precious metals remains at a maximum 28%.

Rules for Capital Losses

Capital losses may be used to offset capital gains.³ If the losses exceed the gains, up to $3,000 of those losses may be used to offset the taxes on other kinds of income. Should you have more than $3,000 in such capital losses, you may be able to carry the losses forward. You can continue to carry forward these losses until such time that future realized gains exhaust them. Under current law, the ability to carry these losses forward is lost only on death.

Finally, for some assets, the calculation of a capital gain or loss may not be as simple and straightforward as it sounds. As with any matter dealing with taxes, individuals are encouraged to seek the counsel of a professional tax advisor before making any tax-related decisions.

  1. Brainy Quote, 2017
  2. IRS, 2017
  3. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation.