Below is a quick chart of capital gains tax rates for tax year 2021. You will find further explanations below the charts.
Short-Term Capital Gains Tax Rate
Short-term capital gains (on assets bought and sold in less than one year) are treated the same as any other regular income you make. So you simply add those short-term gains to the other income you make during the year and you’ll get taxed on all of that short-term income using the Federal Tax Brackets found here.
So, for example, if you made $60,000 at your job and had $13,000 in short-term capital gains, the IRS tells you to simply add those amounts together, and you’d get the same tax treatment on all $73,000 of “regular income.”
Long-Term Capital Gains Tax Rate (Assets Sold Beyond One Year):
| Your long-term rate is… | If you are a Single taxpayer with income of… | Or, if Married, Filing Jointly, with combined income of… |
|---|---|---|
| 0% | $1 – $40,400 | $1 – $80,800 |
| 15% | $40,401 – $445,850 | $80,801 – $501,600 |
| 20% | $445,851 or higher | $501,601 or higher |
Lower Long-Term Tax Rates Encourage Long-Term Investing:
If you compare the Federal tax rates on regular income versus the tax rates on long-term capital gains, you can see that long-term capital gains usually get a lower tax rate (and always get at least the same tax rate) as short-term capital gains.
Why? Because the U.S. government decided long ago that people should be encouraged to be long-term savers & investors versus being short-term speculators. So, if you buy and then sell the same asset within the same 12-month period, that’s seen as not being worthy of a tax break, because it was a short-term increase to your income. On the other hand, if you buy an asset and keep it for longer than a year before selling, you’ll get more favorable tax treatment as a long-term investor.
For example, if you buy a stock today at $15 per share because you think there’s a quick profit opportunity, and it jumps to $20 next month, causing you to sell, you’ll get the gains you hoped for, but the IRS frowns upon you when it comes to taxes — you’ll get taxed on that stock gain at your regular income tax rate. However, if you bought that same stock at $15 and held it over a year before selling at $20, you’d likely pay less in taxes because the gain would be taxed at the long-term capital gains rate, which for most people is going to mean paying 15% or even 0% on those gains — and therefore that’s almost always lower than the tax rate they pay on their regular income.