![]() The combined income an individual earned between ordinary income and the capital gain is used to determine the long-term capital gains rate that the individual will be taxed on. ![]() ![]() If the asset was held for longer than one year, then long-term capital gains tax treatment applies. To determine an individual’s capital gains tax liability, the period in which the asset was held prior to the sale should first be reviewed. How is the capital gains tax liability calculated? While increases in asset values are generally qualified to be taxed at the long-term capital gains rates, there are exceptions for collectible assets such as coins, precious metals, antiques, and fine art which are taxed at a higher rate of 28%. Ordinary income tax rates for a single filer in 2021 range from 10% at the lower income levels to 37% for income levels above $523,600. ![]() For individuals earning $250,000 or more if married and $200,000 or more for single filers, an additional 3.8% tax is levied on capital gains. For a single filer in 2021, the capital gains tax rate is 0% for income up to $40,400, 15% for income above $40,400 but below $445,850, and 20% for any income above $445,850. The long-term capital gains tax rate is 0%, 15%, or 20% depending on the individual’s taxable income and filing status. Earnings for a corporation, for example, are taxed at the corporate level and then investors are again taxed on the change in value of shares of stock in the corporation when those gains are realized. Finally, the taxes collected for capital gains is a tax on assets which were taxed previously at another level. Secondly, having lower capital gains tax rates encourages individuals to realize gains when timing is appropriate as opposed to holding onto these assets longer than they otherwise would have, which causes current tax revenues to increase. One of those reasons is to encourage individuals to invest in corporations and real estate, as these investments tend to benefit society and drive economic growth. Capital gains are taxed at rates favorable to ordinary income rates for a number of reasons. ![]()
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