You may have a capital gain or loss when you sell a capital asset, such as real estate, stocks, or bonds. Capital gains and losses are taxed differently from income like wages, interest, rents, or royalties, which are taxed at your federal income tax rate (up to 37% for the 2022 tax filing season). However, you may only pay up to 20% for capital gains taxes. And unlike ordinary income taxes, your capital gain is generally determined by how long you hold an asset before you sell it.
Use our capital gains calculator for the 2022-2023 tax season to determine how much tax you might pay on sold assets.
Calculator disclaimer: *Calculations are estimates based on the tax law as of September 2022. These rates are subject to change. Check the IRS website for the latest information about capital gains.
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Frequently Asked Questions (FAQs) About Capital Gains Tax
What are capital gains and losses?
A capital gain occurs when your capital asset, such as real estate, stocks, or bonds increases in value, whereas a capital loss occurs when the asset decreases in value. The gain or loss is taxable when the capital asset is sold.
What is the difference between short-term and long-term capital gain tax rates?
A short-term capital gain is the result of selling a capital asset you held in your possession for one year or less. Long-term capital gains are capital assets held for more than a year. Typically, you pay a higher tax rate on short-term capital holdings versus long-term ones.
Depending on how long you hold your capital asset determines the amount of tax you will pay. Short-term capital assets are taxed at your ordinary income tax rate up to 37% for 2022-2023 tax filing. Long-term assets are subject to capital gain tax rates, which are lower. When filing 2022 taxes, the top capital gain tax rate is 20%.
How do you treat capital loss tax on your tax return?
For tax purposes, your capital loss is treated differently than your capital gains. If you sell a capital asset at a loss, which typically means your selling price is less than its cost when you got the asset, you can claim a loss up to $3,000 ($1,500 if married separately) on your tax return. The amount reduces your taxable income and reduces the amount you may owe in taxes. If your loss exceeds these limits, you may carry it forward to later tax years.
How to report capital gains or losses on your tax return
You should report your capital gains or losses on Schedule D of your Form 1040 and transfer the reportable amount to Line 13 of your Form 1040.
