Before you file your taxes, understand how capital gains taxes work, how they’re calculated and what you can do to lower your tax bill.
Capital gains tax is a tax you pay on the profit you make when you sell an asset.
For example, if you buy 50 shares of stock worth $100 each, then sell all 50 shares when they’re worth $150, you’d pay capital gains taxes on the $50 difference — $2,500 in total.
There are two different types of capital gains taxes:
The short-term capital gains rate is equal to your ordinary income tax bracket. Long-term rates vary depending on your income and filing status:
| Rate | Single | Married filing jointly | Head of household | Married filing separately | Trusts and estates |
|---|---|---|---|---|---|
| 10% | $0 to $11,000 | $0 to $22,000 | $0 to $15,700 | $0 to $11,000 | $0 to $2,900 |
| 12% | $11,001 to $44,725 | $22,001 to $89,450 | $15,701 to $59,850 | $11,001 to $44,725 | —– |
| 22% | $44,726 to $95,375 | $89,451 to $190,750 | $59,851 to $95,350 | $44,726 to $95,375 | —– |
| 24% | $95,376 to $182,100 | $190,751 to $364,200 | $95,351 to $182,100 | $95,376 to $182,100 | $2,901 – $10,550 |
| 32% | $182,101 to $231,250 | $364,201 to $462,500 | $182,101 to $231,250 | $182,101 to $231,250 | —– |
| 35% | $231,251 to $578,125 | $462,501 to $693,750 | $231,251 to $578,100 | $231,251 to $346,875 | $10,551 – $14,450 |
| 37% | $578,126+ | $693,751+ | $578,101+ | $346,876+ | $14,451+ |
| Rate | Single | Married filing jointly | Head of household | Married filing separately | Trusts and estates |
|---|---|---|---|---|---|
| 0% | $0 to $44,625 | $0 to $89,250 | $0 to $59,750 | $0 to $44,625 | $0 to $3,000 |
| 15% | $44,626 to $492,300 | $89,251 to $553,850 | $59,751 to $523,050 | $44,626 to $276,900 | $3,001 to $14,649 |
| 20% | $492,300+ | $553,850+ | $523,051+ | $276,901+ | $14,650+ |
While there are no limits to the capital gains tax, there are limitations for capital losses, also known as net capital gains. Capital losses are losses you incur after selling an asset for less than you purchased it. Use your losses to offset your gains so you’ll only get taxed for your capital gains.
For 2023, if your losses are more than your capital gains you can deduct up to $3,000 — or $1,500 if you’re married and filing separately. If your capital losses exceed this limit, fill out the Capital Loss Carryover Worksheet on the IRS website to calculate how much loss you’re allowed to carry over to future years.
Also, if you claim a loss you can’t buy back the asset within the first 30 days after you’ve sold it. If you buy it back within this timeframe you can’t claim the loss. This is called the wash sale rule.
While the capital gains tax brackets remained at 0%, 15% and 20%, the income limits have shifted over the past three years due to the Tax Cuts and Jobs Act. Here are the short- and long-term capital gains tax rates for 2020–2022:
| Rate | Single | Married filing jointly | Head of household | Married filing separately | Trusts and estates |
|---|---|---|---|---|---|
| 10% | $0 to $10,275 | $0 to $20,550 | $0 to $14,650 | $0 to $10,275 | $0 to $2,750 |
| 12% | $10,276 to $41,775 | $20,551 to $83,550 | $14,651 to $55,900 | $10,276 to $41,775 | —– |
| 22% | $41,776 to $89,075 | $83,551 to $178,150 | $55,901 to $89,050 | $41,776 to $89,075 | —– |
| 24% | $89,076 to $170,050 | $178,151 to $340,100 | $89,051 to $170,050 | $89,076 to $170,050 | $2,751 to $9,850 |
| 32% | $170,051 to $215,950 | $340,101 to $431,900 | $170,051 to $215,950 | $170,051 to $215,950 | —– |
| 35% | $215,951 to $539,900 | $431,901 to $647,850 | $215,951 to $539,900 | $215,951 to $323,925 | $9,851 to $13,450 |
| 37% | $539,901+ | $647,851+ | $539,901+ | $323,926+ | $13,451+ |
| Rate | Single | Married filing jointly | Head of household | Married filing separately | Trusts and estates |
|---|---|---|---|---|---|
| 0% | $0 to $41,675 | $0 to $83,350 | $0 to $55,800 | $0 to $41,675 | $$0 to $2,800 |
| 15% | $41,676 to $459,750 | $83,351 to $517,200 | $55,801 to $488,500 | $41,676 to $258,600 | $2,801 to $13,700 |
| 20% | $459,751+ | $517,201+ | $488,501+ | $258,601+ | $13,701+ |
If you’ve sold an asset for profit this year, it may be subject to capital gains taxes. Some popular assets include:
Note that the capital gains tax doesn’t apply to business inventory, business property and intangible assets like copyrights and patents.
Follow these steps below to calculate your capital gains tax rate:
Let’s look at an example.
Katie bought a rental property for $200,000 and sold it three years later for $250,000, so she’ll pay long-term capital gains taxes on the $50,000 profit. She’s single and her adjusted gross income falls under the 15% tax bracket, so she’ll pay $7,500 to the IRS.
There are a few things to watch out for with the capital gains tax:
Offset your capital gains tax by:
If you’ve sold any investments or property this year, there’s a good chance you’ll pay capital gains taxes. Calculating this rate may seem daunting, but most tax preparation software packages will do it for you when you file your taxes.
If you’re looking to make this tax season a breeze, consider hiring a professional or using a top-rated online service to file your tax return.
Who can claim head of household?
Claim head of household if you:
A qualifying dependent is someone who is related to you and is under age 19 or under age 24 and enrolled as a full-time college student.
How do I avoid capital gains tax on property?
If you recently sold an investment or rental property, avoid capital gains tax by filling out a 1031 exchange and rolling your profit into a similar investment. You usually have 180 days to do this.
What are the ordinary income tax brackets for 2023?
The ordinary income and short-term capital gains rates are:
Ordinary income tax rates for 2023
| Rate | Single | Married filing jointly | Head of household | Married filing separately | Trusts and estates |
|---|---|---|---|---|---|
| 10% | $0 to $11,000 | $0 to $22,000 | $0 to $15,700 | $0 to $11,000 | $0 to $2,900 |
| 12% | $11,001 to $44,725 | $22,001 to $89,450 | $15,701 to $59,850 | $11,001 to $44,725 | —– |
| 22% | $44,726 to $95,375 | $89,451 to $190,750 | $59,851 to $95,350 | $44,726 to $95,375 | —– |
| 24% | $95,376 to $182,100 | $190,751 to $364,200 | $95,351 to $182,100 | $95,376 to $182,100 | $2,901 – $10,550 |
| 32% | $182,101 to $231,250 | $364,201 to $462,500 | $182,101 to $231,250 | $182,101 to $231,250 | —– |
| 35% | $231,251 to $578,125 | $462,501 to $693,750 | $231,251 to $578,100 | $231,251 to $346,875 | $10,551 – $14,450 |
| 37% | $578,126+ | $693,751+ | $578,101+ | $346,876+ | $14,451+ |
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