Basics

Understanding Capital Gains Tax Rates

The way capital gains tax rates are figured depends on your income (which puts you in a tax bracket) and the length of the holding periods for your investments (including stocks, bonds, and mutual fonds. There is a higher tax rate for real estate, business property, etc.) The tax bracket is determined by figuring out your net income for the year. If you are in the 15% tax bracket, you pay lower taxes. If you are in the 28% tax bracket or higher you pay almost twice in taxes.

If you are in the 15% tax bracket, you pay 15% capital gains tax on short term investment gain (assets held for less than one year.) You pay 10% capital gains tax on long term investments (assets held for more than one year.)

If you are in the 28% tax bracket, you pay 39.6% capital gains tax on short term investments and 20% capital gains tax on long term investments. It doesn't take a genius to realize that the tax jumps twice in percentage between the two brackets. A little common sense on your part in making your investments will make the real difference in how much Uncle Sam gets from you.

So be a savvy investor and try making more long term investments than short ones.