Follow us:
  1. Home
  2. Tax Relief
  3. About capital gains taxes in 2020

About capital gains taxes in 2020

What are capital gains and how are they taxed?

Profile picture of Kathryn Parkman
by Kathryn Parkman ConsumerAffairs Research Team
tax paperwork

Capital gains refer to the increase in the value of a capital asset between its purchase price and the price it’s sold at. Capital assets are property used for personal or investment purposes, including stocks, bonds, mutual funds, real estate, precious metals and jewelry.

How much you owe for capital gains taxes depends on how long you held the investment and how much the value increased during that time. If the asset decreased in value over time, it's considered a capital loss.

What is capital gains tax?

Capital gains tax is a levy on the difference between an asset’s purchase price and sale price. Rates range from 0% to 37%, depending on your tax bracket and the length of time the asset was held.

  • Long-term capital gains tax: If an asset has been held for longer than a year, its capital gains are taxed at up to 20%.
  • Short-term capital gains tax: For capital assets that have been held for less than a year, short-term capital gains tax rates can be as high as 37%.

How does capital gains tax work?

Taxpayers use IRS Form 1040 to report capital gains and losses. Those with larger incomes may be required to make quarterly estimated tax payments. Otherwise, you pay your capital gains taxes when you file your annual taxes. For the most up-to-date information about reporting, visit the IRS page about Schedule D.

Capital Gain =
Selling Price − Purchase Price

The seller’s filing status, tax bracket and the length of time the asset was held are used to calculate the capital gains tax. These tax rates can range as high as 37%. Watch out for two things: rule exceptions and net investment income tax.

  • Capital gains rule exemptions: The IRS offers capital gains tax exemptions if you sold your primary residence. To be eligible, you must have lived in the home for at least two years before the sale date.
  • Net investment income tax: Net investment income includes capital gains and income from rentals, royalties and nonqualified annuities. According to the IRS, net investment income tax (NIIT) rates apply at 3.8% to some individuals, estates and trusts. Visit the IRS website to find out if it applies to you.

Long-term capital gains tax rates

The long-term capital gains tax rates and brackets below should be used when reporting 2019 capital gains on income tax returns. The IRS adjusted long-term capital gains tax brackets for inflation in 2020.

Long-term capital gains tax rates for 2019

Tax rateUnmarriedMarried filing jointlyHeads of household
0%$0$0$0
15%$39,375$78,750$52,750
20%$434,550$488,850$461,700
Source: The Tax Foundation

Long-term capital gains tax rates for 2020

Tax rateUnmarriedMarried filing jointlyHeads of household
0%$0$0$0
15%$40,000$80,000$53,600
20%$441,450$496,650$469,050
Source: The Tax Foundation

How capital gains tax is calculated

A few factors go into determining someone’s tax rate. As mentioned above, the timeline of the asset’s ownership dictates the tax rate’s range. Your filing status establishes the tax brackets of your capital gains. For example, here are the tax brackets for capital gains on a long-term asset:

  • Single filers: For single individuals, those with incomes from $0 to $40,000 are taxed at 0% on capital gains. Capital gains are taxed at 15% if your income is over $40,000, and your profits are taxed at 20% if your income is more than $441,450.
  • Married filing jointly: Married couples who file their taxes together are taxed at 0% on capital gains if their income is below $80,000. The tax rate is 15% for those with incomes over $80,000 and 20% for household incomes over $496,000.
  • Head of household: Heads of households who make less than $53,600 aren’t taxed on capital gains. Households with incomes over that amount are taxed at 15%, and those over $469,050 are taxed at a rate of 20%.
  • Married filing separately: If a married couple is filing separately, they won’t be taxed on capital gains if their income is less than $40,000. Capital gains are taxed at 15% for those with incomes between $40,000 and $248,300, and they’re taxed at 20% for those with incomes higher than $248,300.

Keep in mind that most states levy income taxes on capital gains as well. State-level capital gains taxes can range from 0% to around 13%, meaning long-term capital gains face a top marginal rate of up to nearly 40%.

Capital gains tax FAQ

How much is capital gains tax?
Capital gains tax can range from 0% to 20% for assets that have been held for longer than one year and 0% to 37% for those that have been owned for less than a year. Your tax bracket and filing status also affect the rate.

To figure out long-term capital gains tax, you first need to determine how much you spent on an asset and how much you sold it for. Subtract the buying price from the selling price to calculate if you made a profit. If so, you have a capital gain. If you sold an asset for less, you have a capital loss and report it to offset the loss. According to the IRS, net short-term gains are subject to taxes, just like regular income at graduated tax rates.

What are capital assets?
A capital asset is any property that’s used for personal or investment purposes. Examples of these assets include homes, investment properties, vehicles and stocks.
Do capital gains count as income?
Yes, capital gains count as income. Some capital gains may be tax-advantaged, and there are some exemptions as well.
Who pays capital gains tax?
Those above specific tax brackets pay taxes on all capital gains. However, some capital gains are tax-exempt, such as IRAs, partnerships and bonds.
Are seniors exempt from capital gains tax?
No, there is no exemption for seniors on capital gains taxes. However, some assets are exempt already, such as primary residences up to a specific value and tax-advantaged investments.
How can I avoid capital gains taxes?
When you sell a capital asset, you pay taxes on any capital gains unless that asset is tax-advantaged. Examples of tax-advantaged assets include bonds, annuities and IRAs. For real estate sales of primary residences, homeowners are exempt from capital gains taxes on the first $250,000 of the home’s sale price if they are single and $500,000 if they are married. This exemption can only be used once every two years.

Bottom line

A capital gain is an increase in value while you own an asset. When you sell that asset, you’re responsible for taxes on that capital gain. The exact rate depends on your filing status, tax bracket and how long you held the asset. If you need help sorting out your capital gains tax liability, consider researching tax relief companies.

Take a Financial Relief Quiz

Get matched with an Accredited Partner

    Did you find this article helpful? |
    Share this article
    Profile picture of Kathryn Parkman
    by Kathryn Parkman ConsumerAffairs Research Team

    As a member of the ConsumerAffairs Research Team, Kathryn Parkman believes everyone deserves easy access to accurate and comprehensive information on products and businesses before they make a purchase, which is why she spends hours researching companies and industries for ConsumerAffairs. She believes conscious consumption is everyone's responsibility and that all content deserves integrity.