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Investing is all about making your money work for you — getting money without having to actually perform labor.  But what some investors may initially neglect to take into account is the fact that investment gains mean investment income, and investment income means taxes on investment income. A financial advisor could help you create a tax plan to maximize your investments. Let’s break down the tax rates for your capital gains in 2022 and 2021.

What Are Capital Gains?

Capital gains refers to the money that an investor makes as the profit from selling one or more of their investments or assets. Making a profit means the investor now has income, of course, so this must be factored in when filing taxes. When an investor realizes a capital gain, any proceeds will be considered taxable income.

Capital gains vary depending on how long an investor had owned the asset before selling it. Long-term capital gains come from assets held for over a year. Short-term capital gains come from assets held for under a year.

Based on filing status and taxable income, long-term capital gains for tax years 2021 and 2022 will be taxed at 0%, 15% and 20%. Short-term gains are taxed as ordinary income.

Capital Gains Tax Rates for 2022

Long-term capital gains tax rates for 2022 are as follows:

Long-term Capital Gains Tax Rates for 2022

Rate Single Married Filing Jointly Married Filing Separately Head of Household
0% $0 – $41,675 $0  – $83,350 $0 – $41,675 $0 – $55,800
15% $41,675 – $459,750 $83,350 – $517,200 $41,675 – $258,600 $55,800 – $488,500
20% $459,750+ $517,200+ $258,600+ $488,500+

In 2022, capital gains tax rates for short term capital gains depend on income tax brackets, which also factor in filing status.

For 2022, short-term capital gains tax rates are as follows:

Short-Term Capital Gains Tax Rates for 2022

Rate Single Married Filing Jointly Married Filing Separately Head of Household
10% $0 – $10,275 $0 – $20,550 $0 – $10,275 $0 – $14,650
12% $10,275 – $41,775 $20,550 – $83,550 $10,275 – $41,775 $14,650 – $55,900
22% $41,775 – $89,075 $83,550 – $178,150 $41,775 – $89,075 $55,900 – $89,050
24% $89,075 – $170,050 $178,150 – $340,100 $89,075 – $170,050 $89,050 – $170,050
32% $170,050 – $215,950 $340,100 – $431,900 $170,050 – $215,950 $170,050 – $215,950
35% $215,950– $539,900 $431,900 – $647,850 $215,950– $539,900 $215,950– $539,900
37% $539,900+ $647,850+ $539,900+ $539,900+

Capital Gains Tax Rates for 2021

Long-term capital gains tax rates for 2021 are as follows:

Long-term Capital Gains Tax Rates for 2021

Rate Single Married Filing Jointly Married Filing Separately Head of Household
0% $0 – $40,400 $0  – $80,800 $0 – $40,400 $0 – $54,100
15% $40,401 – $445,850 $80,801 – $501,600 $40,401 – $250,800 $54,101 – $473,750
20% $445,850+ $501,600+ $250,800+ $473,750+

In 2021, capital gains tax rates for short term capital gains also depend on income tax brackets, which factor in filing status.

For 2021, short-term capital gains tax rates are as follows:

Short-Term Capital Gains Tax Rates for 2021

Rate Single Married Filing Jointly Married Filing Separately Head of Household
10% $0 – $9,950 $0 – $19,900 $0 – $9,950 $0 – $14,200
12% $9,951 – $40,525 $19,901 – $80,050 $9,951 – $40,525 $14,201 – $54,200
22% $40,526 – $86,375 $81,051 – $172,750 $40,526 – $86,375 $54,201 – $86,350
24% $86,376 – $164,925 $172,751 – $329,850 $86,376 – $164,925 $86,351 – $164,900
32% $164,926 – $209,425 $329,851 – $418,850 $164,926 – $209,425 $164,901 – $209,400
35% $209,426– $523,600 $418,851 – $628,300 $209,426 – $314,150 $209,401 – $523,600
37% $523,601+ $628,301+ $314,151+ $523,601+

How Are Capital Gains Calculated and Reported?

To calculate capital gains, you’ll need your basis, or the cost of the asset when you paid for it.

Gains aren’t a guaranteed possibility, however. Investors may incur capital losses, meaning that the basis amount was more than the amount they eventually sold the asset for. Capital losses can be used to offset capital gains on taxes, but they must first offset capital gains of the same type.

Taxpayers who make sales during the tax year will have to report their gains and/or losses to the IRS on Form 1040, Schedule D, “Capital Gains and Losses.” They must first list all sales that result in these gains or losses on Form 8949, “Sales and Other Dispositions of Capital Assets.”

Bottom Line

Capital gains can be tricky, especially if you wait too long to understand how they implicate your financial situation at tax time. But knowing how long you will hold assets before selling, what the purchase and sales prices could be, as well as your tax filing status and income bracket can help you calculate how much you could owe in taxes.

Tips for Investors

  • Need help with finding a financial advisor? Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
  • You might also be interested in signing up for a robo-advisor. Many robo-advisors offer tax-loss harvesting, which sells investments that are hurting your portfolio and helps offset what you earn from the gains. Robo-advisors aren’t necessarily right for everyone, but if you’re starting your investment journey or you don’t have complicated assets, you may want to give it a try. If you’re unsure, find one that offers you the chance to talk to a financial professional if you have questions about your specific needs. Not all robo-advisors offer this perk, but some do, usually for a fee.

Photo credit: ©iStock.com/Korrawin, ©iStock.com/Tempura, ©iStock.com/Jirapong Manustrong, ©iStock.com/Geber86

Nadia Ahmad, CEPF® Nadia Ahmad is a Certified Educator in Personal Finance (CEPF®) and a member of the Society for Advancing Business Editing and Writing (SABEW). Her interest in taxes and grammar makes writing about personal finance a perfect fit! Nadia has spent ten years working as a seasonal income tax assistant, researching federal, state and local tax code and assisting in preparing tax returns. Nadia has a degree in English and American Literature from New York University and has served as an instructor/facilitator for a variety of writing workshops in the NYC area.
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