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What is Capital Gains tax in Simple Terms?

What is Capital Gains tax in Simple Terms?

February 23, 2024

What is capital gains tax in simple terms? A guide to 2024 rates, long-term vs. short term.

Full article here: USA today full article here

Tax season can feel like a minefield for new and old filers alike. Whether you work with a professional or file on your own, landing on the exact number amount you owe Uncle Sam (and vice versa) requires tireless calculation. 

An important part of this calculus is the capital gains tax – a government levy on profits reaped from investments. It applies to everything from your stock portfolio to your jewelry drawer.

Here's what you should know about the capital gains tax, including the 2024 rates and the difference between short-term and long-term profits. 

What is capital gains tax? 

Let's start at the beginning. What are capital gains? They refer to any profit you make from buying an asset at one price and selling it at a higher price. 

All capital gains, like other profits, are subject to taxes. But there are caveats. For example, if you have a stock with a share price of $100 and it rises to $200 − that is a 'capital gain' but not one that you will be taxed on unless you 'close your position,' meaning you sell that stock for the cash value. 

Once you sell the stock and realize the actual capital gain (in this case $100), you can be taxed on that difference. 

Long-term capital gains vs. short-term

A short-term capital gains tax is levied on the profits of investments that were sold after being held for a year or less. They are taxed at the same rate as your income. The IRS's tax brackets determine the tax you pay for each portion of your income. Long-term capital gains tax is applied to investments that have been held for over a year before they were sold for a profit. Long-term capital gains are generally taxed at a lower rate. For the 2024 tax year, the highest possible rate is 20%. 

What qualifies for capital gains tax?

Capital gains taxes are not exclusive to the stock market. Anything considered a "capital asset" is subject to the tax. Essentially, any investment made that could appreciate and create a profit is fair play. 

Capital gains tax applies to:

  • Real estate
  • Bonds
  • Mutual funds
  • NFTs/cryptocurrency
  • Jewelry/coin collections

    What is the 2024 capital gains tax rate? 

    The amount you will be taxed on capital gains depends on how long you have held a certain capital asset (long-term vs. short-term) and your income (what tax bracket you fall in.) 

    For short-term gains, you can follow the regular guide for income tax to see how much you will pay for profits. 

    The long-term capital gains tax rates for the 2023 and 2024 tax years are 0%, 15%, or 20%. The higher your income, the more you will have to pay in capital gains taxes. 

    The rate is 0% for: 

    • Unmarried individuals filing separately with a taxable income less than or equal to $47,025.
    • Married filing jointly with a taxable income less than or equal to $94,050.
    • Head of household with a taxable income less than or equal to $63,000.

    The rate is 15% for: 

    • Unmarried individuals filing with a taxable income between $47,025 and $518,900.
    • Married filing separately with a taxable income between $94,050 and $583,750.
    • Head of household with a taxable income between $63,000 and $551,350.

    The rate is 20% for

    • Anyone whose taxable income is above the 15% threshold in their category.

      This material was written by an independent third party. It is provided for informational and educational purposes only. The views and opinions expressed herein may not be those of Guardian Life Insurance Company of America (Guardian) or any of its subsidiaries or affiliates. Guardian does not verify and does not guarantee the accuracy or completeness of the information or opinions presented herein. Guardian, its subsidiaries, agents and employees do not provide tax, legal, or accounting advice. Consult your tax, legal, or accounting professional regarding your individual situation. Links to external sites are provided for your convenience in locating related information and services. Guardian, its subsidiaries, agents and employees expressly disclaim any responsibility for and do not maintain, control, recommend, or endorse third-party sites, organizations, products, or services and make no representation as to the completeness, suitability, or quality thereof.