capital gains tax

What Are the Capital Gains Tax Rates for 2021 vs. 2020?

The tax rate that applies to your long-term capital gains depends on your taxable income. Rates for short-term capital gains are higher.

The federal income tax rate that applies to gains from the sale of stocks, mutual funds or other capital assets depends on how long you held the asset and your taxable income. Gains from the sale of capital assets that you held for at least one year, which are considered long-term capital gains, are taxed at either a 0%, 15% or 20% rate.

However, which one of those long-term capital gains rates – 0%, 15% or 20% – applies to you depends on your taxable income. The higher your income, the higher the rate. Here are the capital gains taxable income thresholds for the 2021 tax year:

2021 Longer-Term Capital Gains Tax Rate Income Thresholds

Capital Gains
Tax Rate

Taxable Income
(Single)

Taxable Income
(Married Filing Separate)

Taxable Income
(Head of Household)

Taxable Income
(Married Filing Jointly)

0%

Up to $40,400

Up to $40,400

Up to $54,100

Up to $80,800

15%

$40,401 to $445,850

$40,401 to $250,800

$54,101 to $473,750

$80,801 to $501,600

20%

Over $445,850

Over $250,800

Over $473,750

Over $501,600

The income thresholds for the capital gains tax rates are adjusted each year for inflation. To compare how the thresholds changed from 2020 to 2021, here are the figures for the 2020 tax year:

2020 Long-Term Capital Gains Tax Rate Income Thresholds

Capital Gains
Tax Rate

Taxable Income
(Single)

Taxable Income
(Married Filing Separate)

Taxable Income
(Head of Household)

Taxable Income
(Married Filing Jointly)

0%

Up to $40,000

Up to $40,000

Up to $53,600

Up to $80,000

15%

$40,001 to $441,450

$40,001 to $248,300

$53,601 to $469,050

$80,001 to $496,600

20%

Over $441,450

Over $248,300

Over $469,050

Over $496,600

The tax rate on short-term capitals gains (i.e., from the sale of assets held for less than one year) is the same as the rate you pay on wages and other "ordinary" income. Those rates currently range from 10% to 37%, depending on your taxable income. To see what rate you'll pay, see What Are the Income Tax Brackets for 2021 vs. 2020?

Surtax on Net Investment Income

There's an additional 3.8% surtax on net investment income (NII) that you might have to pay on top of the capital gains tax. (NII includes, among other things, taxable interest, dividends, gains, passive rents, annuities, and royalties.) You must pay the surtax if you're a single or head-of-household taxpayer with modified adjusted gross income (AGI) over $200,000, a married couple filing a joint return with modified AGI over $250,000, or a married person filing a separate return with modified AGI over $125,000. Use Form 8960 to calculate the surtax.

Biden's Plans to Increase Rates for Wealthy Americans

President Biden wants to increase the long-term capital gains tax for wealthier Americans. Under his plan, the long-term capital gains of anyone with an AGI of more than $1 million would be taxed at the ordinary income tax rates, but only to the extent that the person's income exceeds $1 million ($500,000 for a married person filing a separate tax return). For example, if you had $900,000 in wages and $200,000 in long-term capital gains, $100,000 of the capital gains would be taxed at the current long-term capital gains tax rate (0%, 15% or 20%) and $100,000 would be taxed at your ordinary income tax rate.

As noted earlier, the top ordinary income tax rate is currently 37%. However, the president also hopes to raise the top rate to 39.6%. So, when the additional tax on NII is factored in, investors earning $1 million or more could see their tax rate on all capital gains jump to 43.4%. For long-term capital gains, that's a potential increase of up to 19.6% over the current maximum tax.

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