2013 Capital Gains Rates

[MonkeyMama]

There seems to be a lot of confusion over recent tax changes (VERY understandably). So here is how things shake out for 2013. Most of these are rather permanent provisions to the tax code. "Permanent" meaning there is no set expiration.

Capital gains rates stayed the same for most taxpayers.

Qualified dividends are still taxed at capital gain rates.

If you are in the 10% or 15% tax bracket, your long-term capital gain rate is 0%.
If you are in the 25% or higher tax bracket, your long-term capital gain rate is 15%.
If you are in the 39.6% tax bracket, your long-term capital gain rate is 20%.

Obamacare: There is also a 3.8% surtax on unearned income for married households with $250k+ income and individuals with $200k+ income. "Unearned income = capital gains, interest, rents, dividends," etc.

I think this also says it very simply, and addresses some of the bad info out there about all home sales being taxed (not true). The tax bracket income levels are "taxable income" (taxable income after all deductions) whereas MAGI is considered for the surtax:

2013 Investment Tax Rates: The Fiscal Cliff Capital Gains Rate Increase & The New 3.8% Medicare Tax

Of course, keep in mind that interest and non-qualified dividends, and short term capital gains, are taxed at your regular tax rate. & your state may also tax long term capital gains and qualified dividends at ordinary tax rates.

There is no rule against harvesting tax gains and there are no wash sales rules for GAINS, and so for investments, this is very useful knowledge to have. If you sell a big piece of real estate that bumps you into the next tax bracket, there isn't much you can do, in comparison. I harvest gains periodically, since we have been in the 0% long term capital gains rate for so long. Basically just selling mutual funds and re-buying them immediately, rather than waiting to report one large capital gain in the future.

[bjl584]

Nice write up. Thanks for the info.

I made this thread "sticky" so it will be easier for people to find. It will remain at the top of the page for the rest of the year, or until the tax code changes again.

[YLTL_Dan]

If you sell a big piece of real estate that bumps you into the next tax bracket, there isn't much you can do, in comparison.

Great post, thanks for clarifying! One quick question on the quote above, you mention earlier the capital gains on the sale of a house aren't taxed - does the above statement only refer to real estate separate from a primary residence?

[MonkeyMama]

Great post, thanks for clarifying! One quick question on the quote above, you mention earlier the capital gains on the sale of a house aren't taxed - does the above statement only refer to real estate separate from a primary residence?

Yes. Unearned income from real estate investments, rentals, second homes, etc.

It could also apply if you have taxable capital gains on the sale of a personal residence - but you'd have to have a gain more than $250k single/$500k married, and only the portion above $250k/$500k would be taxed.

[YLTL_Dan]

Got it, thanks!

[elfen lied]

It has been universally reported that under the newly passed American Taxpayer Relief Act of 2012, net capital gain tax rates have risen to 20% for taxpayers with taxable income greater than $400,000 for single filers and $450,000 for joint filers. To clarify this broad statement, under section 102 of the new law, the higher capital gains rate applies only to the gain that, when added to other taxable income, exceeds the threshold amounts.
Income type amt tax rate ncgtax
Ordinary income 400
Netcapitalgain 200
taxable income 600

39.6%THRESHOLD 450
Net capital gain>THRESHOLD 50 15% 7.5
Net capital gain<THRESHOLD 150 20% 30

[Rainbow Traveller]

This could be possible because the short term capital gains will end being taxed at what ever percentage you marginal tax rate will be when you get to the page 2 of your 1040 line 43 $$$$$ Taxable income amount at that time in your life.
Short-term gains and losses. Capital gain or loss on the sale or trade of investment property held 1 year or less is a short-term capital gain or loss. You report it in Part I of Schedule D. If the amount you report in column (f) is a loss, show it in parentheses.
You combine your share of short-term capital gain or loss from partnerships, S corporations, and fiduciaries, and any short-term capital loss carryover, with your other short-term capital gains and losses to figure your net short-term capital gain or loss on line 7 of Schedule D.
Capital Losses
If your capital losses are more than your capital gains, you can claim a capital loss deduction. Report the deduction on line 13 of Form 1040, enclosed in parentheses.
Limit on deduction. Your allowable capital loss deduction, figured on Schedule D, is the lesser of:

$3,000 ($1,500 if you are married and file a separate return), or

Your total net loss as shown on line 16 of Schedule D.

You can use your total net loss to reduce your income dollar for dollar, up to the $3,000 limit.

Capital loss carryover.
Use the search box at the www.irs.gov website for the below
Publication 550 (2010), Investment Income and Expenses
(Including Capital Gains and Losses)

[bruceingram1958]

This really helps. Also consider diversifying your investments to minimize risks.