How to Calculate Capital Gains Taxes

Most long-term capital gains are taxed at a maximum of 15%
Most long-term capital gains are taxed at a maximum of 15% (Image: Hemera Technologies/ Images)

Capital-gains taxes are collected by the Internal Revenue Service (IRS) on profits you make from selling assets such as stocks and bonds, real estate, jewelry and collectibles. They are classified as long-term and short-term, depending on how long you owned the property, and are taxed at different rates.

Determine the basis of any capital items you sold during the tax year. The basis is the value of the property at the time you bought or inherited it.

Calculate your net gain by subtracting the basis from the price you got from selling the item. For example, if you bought a house for $120,000 and sold it for $200,000, your net gain is $80,000.

Determine whether your gains are short-term or long-term. If you owned the asset for less than a year, it is a short-term gain. If you held it for more than a year, it is a long-term gain.

Subtract your long- and short-term losses, if any, from your long-term gains. This is your capital gain for the year. For example, if you had $5,000 in long-term gains, $2,000 in long-term losses and $1,000 in short-term losses, your total long-term capital gains would be $2,000. It is possible to show negative capital gains, or a capital loss, which can be a deduction on your tax return.

Determine the tax rate for your capital gains. If it would be taxed at 25% or more if it were included as part of your income, the capital-gains tax rate would be the maximum15%. If it would be taxed at less than 25%, the tax rate would be 0%.

Determine the tax on your short-term gains by adding them to your adjusted gross income. You will pay your marginal tax rate on these gains. For example, if you fall into the 35% tax bracket, your short-term gains will be taxed at 35%.

Tips & Warnings

  • Capital-loss deductions are limited to $3,000 for married couples and $1,500 for individuals. Any excess can be carried over to the next tax year.
  • If you had capital gains from selling collectibles, the maximum tax rate would increase to 28%.

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