New Capital Gain Tax Rates

Mar 1, 2013 by

crystal ball income taxKeeping up with seemingly ever-changing tax rates can become so frustrating it’s tempting to give up and ignore taxes when plotting a strategy for investing your savings. While that might help preserve sanity and control blood pressure, taxes play a big role in the long-term growth of your nest egg. Unless you’re plain lucky, your investment return will be improved considerably if you factor taxes into your planning.

American Taxpayer Relief Act of 2012

Remember the Ben Bernanke-named “fiscal cliff”? The American Taxpayer Relief Act (ATRA)—signed into law by President Obama on January 2 of this year—partly resolved this second-to-most-recent Washington-engineered train wreck. One of ATRA’s many provisions re-sets capital gain tax rates. Your rate may have changed. Or maybe it didn’t.

ATRA Capital Gain Tax Rates

First, let’s clarify that this discussion applies to long-term capital gains only. Long-term means you held whatever asset you bought and sold to achieve the gain for at least 366 days.

So what did ATRA do to capital gain tax rates?

→ If you’re not a high-income or low-income earner, the maximum capital gain rate remains unchanged at 15%.

→ If you are a high-income earner, the top capital gain rate kicked up by 5 percentage points to 20%.

→ Taxpayers in the two lowest income tax brackets will continue to enjoy a 0% capital gain tax.

Who Continues to Get a 0% Capital Gain Tax Rate?

Your capital gains will be hit with no federal income tax on your 2012 return if:

  • Single or married filing separately: Taxable income is less than $35,350
  • Married filing jointly: Taxable income is less than $70,700
  • Head of household: Taxable income is less than $47,350

Who Pays the New, Higher 20% Capital Gain Tax Rate?

  • Single or married filing separately: Taxable income is $400,000 or more
  • Married filing jointly: Taxable income is $450,000 or more
  • Head of household: Taxable income is $425,000 or more

The new 20% rate takes effect for the 2013 tax year.

Many Continue to Pay a 15% Capital Gain Tax Rate

If you don’t fit in any of the categories above, your long-term capital gain tax rate is unchanged at 15%.

ATRA’s Affect on You?

Without getting too personal, will ATRA have an impact on your capital gain tax rate? Ours will stay the same as pre-ATRA.

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