How Much Is Capital Gains Tax? All the Details You NeedCapital gains taxes are confusing -- so we did the research for you.By Lyle Daly – Updated Oct 6, 2022 at 11:29AM Show
Capital gains tax rates are an important consideration for every investor because you'll have to pay capital gains tax on stocks when you sell them. That's also true of other assets, as we'll see below. By understanding how these work at the federal and state level, you can minimize your tax burden.  Image source: Getty Images. Capital gains taxes are also a hotly debated subject, and changes could be on the way. President Joe Biden is aiming to raise the top tax rates on capital gains income and even potentially tax unrealized capital gains for ultra-wealthy investors. Some states are taking a closer look at starting capital gains taxes or raising their rates. To provide the most recent info on capital gain taxes, we've collected data on long- and short-term capital gains tax rates in 2022, including from the IRS and in all 50 states. What is capital gains tax?Capital gains tax is the tax you pay after selling an asset that has increased in value. Assets subject to capital gains tax include stocks, real estate, and businesses. You pay capital gains tax on the profit you made from the sale. For example, if you buy a stock for $100 and sell it for $150, you would pay capital gains tax on $50. Capital gains are an essential part of understanding how investing and taxes work. There are exclusions for certain types of capital gains that can lower how much you pay in taxes. The home sale exclusion is one of the most common and allows you to save on taxes when selling a house. If you've owned and used your home as your main home for at least two out of five years prior to its date of sale, you can exclude up to $250,000 in capital gains if you're a single filer or up to $500,000 if you're filing jointly with your spouse. What is short-term capital gains tax?Short-term capital gains tax is what you pay on assets that you sell within a year. If you bought a share of Tesla (NASDAQ:TSLA) and sold it six months later, you would pay short-term capital gains tax. This type of capital gain is taxed as ordinary income. What is long-term capital gains tax?Long-term capital gains tax is what you pay on assets that you sell after more than a year. If you bought a share of Apple (NASDAQ:AAPL) in 1995 and sold it in 2020, you would pay long-term capital gains tax. Tax rates are lower for long-term capital gains, which is why it's generally recommended to hold assets for at least a year to minimize your taxes. Just like income tax, you'll pay a tiered tax rate on your capital gains. For example, a single person with a total short-term capital gain of $15,000 would pay 10% of $10,275 ($1,027.50), then 12% on the additional $5,000 ($600), for a total of $1,627.50. Federal short-term capital gains tax ratesFederal tax rates on short-term capital gains are equal to income tax rates. Data source: Internal Revenue Service (2022).
Federal long-term capital gains tax ratesData source: Internal Revenue Service (2022).
State capital gains tax ratesEach state has its own method of taxing capital gains. Most states tax capital gains as income. In states that do this, the state income tax applies to long- and short-term capital gains. There are also plenty of states that handle capital gains differently. Some allow taxpayers to deduct a certain amount of capital gains. Others don't tax income or capital gains at all. The sections below cover every state's tax laws for capital gains. They also include state income taxes for states that tax capital gains as income. Keep in mind that many states have special rules that apply to the sale of certain assets, such as exclusions for collectibles purchased before a certain year. Not every rule for every situation is included. Taxpayers should always review the capital gains rules in their state so they know about any relevant exceptions. AlabamaAlabama taxes capital gains as income and both are taxed at the same rates. Alabama capital gains tax ratesData source: Alabama Department of Revenue (2022).
AlaskaAlaska does not tax personal income or capital gains. ArizonaArizona taxes capital gains as income and both are taxed at the same rates. Arizona income and capital gains tax ratesData source: Arizona Department of Revenue (2021).
ArkansasIn Arkansas, 50% of long-term capital gains are treated as income and both are taxed at the same rates. All short-term capital gains are treated as income and 100% of these gains are taxed. Tax rates are the same for every filing status. Arkansas capital gains tax ratesData source: Arkansas Economic Development Commission (2022).
Data source: Arkansas Economic Development Commission (2022).
CaliforniaCalifornia taxes capital gains as income and both are taxed at the same rates. California capital gains tax ratesData source: State of California Franchise Tax Board (2022).
ColoradoColorado taxes capital gains as income and both are taxed at the same rates. The state income and capital gains tax is a flat rate of 4.55%. ConnecticutConnecticut taxes capital gains as income and both are taxed at the same rates. Connecticut capital gains tax ratesSource: Office of Legislative Research (2018).
DelawareDelaware taxes capital gains as income and both are taxed at the same rates. Tax rates are the same for every filing status. Delaware capital gains tax ratesData source: Delaware Division of Revenue (2021).
FloridaFlorida does not tax personal income or capital gains. GeorgiaGeorgia taxes capital gains as income and both are taxed at the same rates. Georgia capital gains tax ratesData source: Georgia Department of Revenue (2021).
HawaiiHawaii taxes capital gains at a rate of 7.25%. IdahoIdaho taxes capital gains as income and both are taxed at the same rates. Idaho capital gains tax ratesData source: Idaho State Tax Commission (2022).
IllinoisIllinois taxes capital gains as income and both are taxed at the same rates. The Illinois state income and capital gains tax is a flat rate of 4.95%. IndianaIndiana taxes capital gains as income and both are taxed at the same rates. The Indiana state income and capital gains tax is a flat rate of 3.23%. IowaIowa taxes capital gains as income and both are taxed at the same rates. Tax rates are the same for every filing status. Iowa capital gains tax ratesData source: Iowa Department of Revenue (2016).
KansasKansas taxes capital gains as income and both are taxed at the same rates. Kansas capital gains tax ratesData source: Kansas Department of Revenue (2022).
KentuckyKentucky taxes capital gains as income and both are taxed at the same rates. The Kentucky state income and capital gains tax is a flat rate of 5%. LouisianaLouisiana taxes capital gains as income and both are taxed at the same rates. Louisiana capital gains tax ratesData source: Louisiana Department of Revenue (2022).
MaineMaine taxes capital gains as income and both are taxed at the same rates. Maine capital gains tax ratesData source: Maine Revenue Services (2022).
MarylandMaryland taxes capital gains as income and both are taxed at the same rates. Maryland capital gains tax ratesSource: Maryland Comptroller (2022).
MassachusettsMassachusetts taxes both income and most long-term capital gains at a flat rate of 5%. There are, however, certain types of capital gains that are taxed at 12% in Massachusetts. The 12% capital gains tax applies to the following:
MichiganMichigan taxes capital gains as income and both are taxed at the same rates. The Michigan state income and capital gains tax is a flat rate of 4.25%. MinnesotaMinnesota taxes capital gains as income and both are taxed at the same rates. Minnesota capital gains tax ratesData source: Minnesota Department of Revenue (2022).
MississippiMississippi taxes capital gains as income and both are taxed at the same rates. Mississippi capital gains tax ratesData source: Mississippi Department of Revenue (2022).
MissouriMissouri taxes capital gains as income and both are taxed at the same rates. Missouri capital gains tax ratesData source: Missouri Department of Revenue (2022).
MontanaMontana taxes capital gains as income and both are taxed at the same rates, but it has a 2% capital gains credit. This means taxpayers can claim an income tax credit of up to 2% of their net capital gains. Montana capital gains tax ratesData source: Montana Department of Revenue (2022).
NebraskaNebraska taxes capital gains as income and both are taxed at the same rates. Nebraska capital gains tax ratesData source: Nebraska Department of Revenue.
NevadaNevada does not tax personal income or capital gains. New HampshireNew Hampshire does not tax personal income or capital gains. New JerseyNew Jersey taxes capital gains as income and both are taxed at the same rates. New Jersey capital gains tax ratesSource: New Jersey Division of Taxation (2020).
Data source: New Jersey Division of Taxation (2020).
New MexicoNew Mexico taxes capital gains as income and both are taxed at the same rates. The state allows filers to deduct either 40% of capital gains income or $1,000, whichever is greater. New Mexico capital gains tax ratesSource: New Mexico Taxation & Revenue (2008).
New YorkNew York taxes capital gains as income and both are taxed at the same rates. New York capital gains tax ratesData source: New York State Department of Taxation and Finance (2022).
North CarolinaNorth Carolina taxes capital gains as income and both are taxed at the same rates. The North Carolina state income and capital gains tax is a flat rate of 4.99%. North DakotaNorth Dakota taxes capital gains as income and both are taxed at the same rates. The state allows filers to deduct 40% of capital gains income. North Dakota capital gains tax ratesData source: North Dakota Office of State Tax Commissioner (2022).
OhioOhio taxes capital gains as income and both are taxed at the same rates. Ohio capital gains tax ratesData source: Ohio Department of Taxation (2021).
OklahomaOklahoma taxes capital gains as income and both are taxed at the same rates. Taxpayers can deduct 100% of their capital gains resulting from
Oklahoma capital gains tax ratesData source: Oklahoma Tax Commission (2022).
OregonOregon taxes capital gains as income and both are taxed at the same rates. Oregon capital gains tax ratesData source: Oregon Department of Revenue (2022).
PennsylvaniaPennsylvania taxes capital gains as income and both are taxed at the same rates. The Pennsylvania state income and capital gains tax is a flat rate of 3.07%. Rhode IslandRhode Island taxes capital gains as income and both are taxed at the same rates. Rhode Island capital gains tax ratesData source: Rhode Island Department of Revenue (2022).
South CarolinaSouth Carolina taxes capital gains as income and both are taxed at the same rates. On long-term capital gains, taxpayers are allowed a deduction of 44%. South Carolina capital gains tax ratesData source: South Carolina Department of Revenue (2022).
South DakotaSouth Dakota does not tax personal income or capital gains. TennesseeTennessee does not tax personal income or capital gains. TexasTexas does not tax personal income or capital gains. UtahUtah taxes capital gains as income and both are taxed at the same rates. The Utah state income and capital gains tax is a flat rate of 4.85%. VermontVermont taxes short-term capital gains and long-term capital gains held for up to three years as income and taxed at the same rates. Taxpayers are allowed to exclude up to 40% of capital gains on assets held longer than three years. This exclusion amount is capped at $350,000 and cannot exceed 40% of federal taxable income. Vermont capital gains tax ratesData source: Vermont Department of Taxes (2022).
VirginiaVirginia taxes capital gains as income and both are taxed at the same rates. Virginia capital gains tax ratesData source: Virginia Department of Taxation (2022).
WashingtonWashington doesn't tax personal income or capital gains. In 2021, a bill was passed that would impose a 7% tax on long-term capital gains above $250,000 starting with the 2022 tax year. However, it was struck down in March 2022. The State has appealed the ruling to the Washington Supreme Court, and a hearing date for the case is pending. West VirginiaWest Virginia taxes capital gains as income and both are taxed at the same rates. West Virginia capital gains tax ratesData source: West Virginia State Tax Department (2021).
WisconsinWisconsin taxes capital gains as income and both are taxed at the same rates. On long-term capital gains, taxpayers are allowed a deduction of 30%, or 60% if the capital gain resulted from the sale of farm assets. Wisconsin capital gains tax ratesData source: Wisconsin Department of Revenue (2022).
WyomingWyoming does not tax personal income or capital gains. States play a major role in capital gains taxesThe lion's share of taxes, including personal income and capital gains taxes, go to the federal government. But each taxpayer's state also determines how much they owe on their capital gains. It's important for taxpayers to know the capital gains tax brackets and exclusions in their respective states so they pay the correct amount. Outside experts weigh inAre there signs that capital gains taxes will be increased to balance the federal debt incurred by issuing stimulus payments? Before there were stimulus checks, candidate Joe Biden expressed support for eliminating (1) the capital gain preference for higher-income people (so that capital gains would be taxed at the same rates as ordinary income for taxpayers with more than $1 million in income) and (2) the fair-market-basis rule that applies to property transferred at death. (The latter is often referred to as the step-up-in-basis rule—although it can work to step-down basis as well -- in that any appreciation in the value of property transferred at death permanently disappears from the income-tax base.) President Biden is expected to include those proposals in a package to be announced next week. He can’t make these changes on his own, however, and I’m not very good at predicting what Congress will do. With both the House and Senate closely divided, congressional approval might be iffy. I’m pretty sure Republicans in Congress would unanimously disapprove of these changes, and I’m skeptical that Democrats would all approve. (The changes would in form directly affect only the well-to-do, but there is always the possibility -- maybe even the likelihood -- of spillover effects on lower-income persons.) If the government expresses interest in raising capital gains taxes, could we see a stock sell-off in response? How might that affect the greater economy? I have little doubt that there would be a sell-off in anticipation of a rate increase, particularly if the rate increase is coupled with elimination of the step-up-in-basis rule (which has provided an incentive to hold on to appreciated property longer than might otherwise be economically desirable). (I’m assuming that any rate increases won’t be retroactive and that taxpayers will have time to sell assets while lower rates remain in effect.) I’m not an economist, and I don’t have a reasoned opinion about the effects on the economy. However, one interesting point is that, if a sell-off occurs, tax revenues might actually go up in the short run, while the lower rates remain in effect. More sales would mean that what would otherwise have been unrealized (and therefore currently untaxed) appreciation would become realized (and therefore taxable) appreciation. When higher rates then go into effect, one would anticipate fewer sales of capital assets. Unsold appreciated assets don’t generate income-tax revenue, and higher rates therefore don’t necessarily mean higher tax revenues. Do you foresee the elimination of 0% capital gains tax rates? How many people might be affected by this, and how might that affect long-term participation in the markets? If the president really supports an increase in the capital gains rate only for higher-income persons, the 0% rate should remain. (In addition, the 100% exclusion for gain on the sale of qualified small business stock under section 1202 -- which has the effect of a 0% rate on such gain, even for high-income taxpayers -- doesn’t seem to be on the chopping block. And a 0% rate always applies to appreciation that isn’t realized -- i.e., if the taxpayer doesn’t sell the appreciated asset.) I’m not sure how many taxpayers benefit from the 0% rate. Direct ownership of stock by individuals is concentrated among higher-income people. The stock market can affect the value of lower-income peoples’ retirement funds, of course, but those funds would generally not be taxable entities. Are there signs that capital gains taxes will be increased to balance the federal debt incurred by issuing stimulus payments? I think potentially all forms of taxation are currently on the table, particularly to help offset the cost of the recent stimulus efforts during the COVID-19 pandemic. It seems, however, that the Biden administration would most likely attempt to raise federal capital gains tax rates for only higher income earners. If the government expresses interest in raising capital gains taxes, could we see a stock sell-off in response? How might that affect the greater economy? History has shown us that while there can be a (mild) stock sell-off in response to anticipated higher future tax rates for capital gains, the sell-off is not as big as one might expect. This article has some nice data to illustrate this point. The fact that such a large portion of the US equity is held by institutional investors (many of which are exempt from capital gains tax) helps mitigate this effect. Additionally, even if there is a sell-off, it tends to be short-lived. I would expect any impact on the economy to be minimal. Do you foresee the elimination of 0% capital gains tax rates? How many people might be affected by this, and how might that affect long-term participation in the markets? I do not foresee the elimination of the 0% capital gains rate for lower-income earners. Any interest by the Biden administration to raise capital gains tax rates seems to be targeted at the upper-income earners. If Washington puts state capital gains taxes in place, might that pave the way for other states to do the same? I do not think that the addition of a capital gains tax in the state of Washington would have much of a bearing on whether other states decide to impose one. The other considerations (political, financial, etc..) on whether to impose a state-level capital gains tax are likely more important. For example, a capital gains tax on top of a higher federal tax might lead some to flee the state or at least make it less desirable to move there. We have seen a general trend of people moving from high tax states to low tax states and state governments are certainly aware of this. I believe the pandemic has sped up the remote worker movement which allows people to be even more mobile and so tax rates may play an even larger role in residency decisions. If the government expresses interest in raising capital gains taxes, could we see a stock sell-off in response? How might that affect the greater economy? I believe a sell-off is certainty, especially if the increase is paired with the repeal of section 1014 which provides for a step-up basis at death. The loss of value in the market will impact pension and retirement funds and make investments less attractive. It is unclear whether an increase will actually raise significantly more revenue so the trade-off does not appear to be worth it. Do you foresee the elimination of 0% capital gains tax rates? How many people might be affected by this, and how might that affect long-term participation in the markets? I do not foresee an elimination of the zero percent rate, but if it occurs it is unlikely to have a significant effect on the market. Sources
Lyle Daly has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple and Tesla. The Motley Fool recommends the following options: long March 2023 $120 calls on Apple and short March 2023 $130 calls on Apple. The Motley Fool has a disclosure policy. HOW THE MOTLEY FOOL CAN HELP YOU
How do you calculate capital gains tax?Your taxable capital gain is generally equal to the value that you receive when you sell or exchange a capital asset minus your "basis" in the asset. Your basis is generally what you paid for the asset. Sometimes this is an easy calculation – if you paid $10 for stock and sold it for $100, your capital gain is $90.
What is the capital gains tax rate for 2023?Capital gains tax rates for 2023. What is the current longThe capital gains tax rate that applies to profits from the sale of stocks, mutual funds or other capital assets held for more than one year (i.e., for long-term capital gains) is either 0%, 15% or 20%. However, which one of those long-term capital gains rates applies to you depends on your taxable income.
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What is the tax rate for capital gains in 2022
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