What are the Capital Gains tax laws?

As the year comes to a close, make sure you are aware of the capital gains tax laws....

When you earn income from your employer or company, that income is taxed at your ordinary income rate. For reference, a married couple filing jointly would pay a marginal tax rate of 24% for earnings of $200K. But what happens if you sell something like real estate or stocks? Well, if you realize a profit on that investment when the investment is sold, you have to pay a capital gains tax (generally).

There are two types of capital gains: short term capital gains and long term capital gains. Short term capital gains tax applies to assets held for 1 year or less and are taxed at the ordinary income rate (typically a higher rate than the capital gains tax rate). Long term capital gains apply to assets held for more than 1 year. LTCG tax rates are currently 0%, 15%, and 20% (depending on your particular tax bracket that year). If you come to the end of the year and are deciding what to hold and what to sell in your portfolio, making sure you know what is a short-term gain vs. a long term game will be important when making your decision, as it will effect your taxable income for the year.

One popular caveat to real estate capital gains tax is if you are selling your primary residence that you have lived in for 2 of the last 5 years. If this is the case, the first $250,000 of capital gains are not taxed ($500,000 if you are married filing joint). Nice break!

For more information on capital gains tax laws, consult your financial professional. #capitalgains #capitalgainstax #wealthtipwednesday

-Your Friends at Red Oak Financial Group