Investors must pay the federal capital gains tax on their capital gains depending on the amount of time the investment was held and their income bracket. Most states impose an additional tax on capital gain.
- Short-Term Capital Gains. Applies to investments held for 1-year or less and are taxed at the same rate as ordinary income.
- Long-Term Capital Gains. Applies to investments held for more than 1-year and are taxed at the rate of either 0%, 15%, or 20%.
- Capital Gain. Calculated by subtracting the adjusted basis of the asset from the net amount realized in the sale of the asset. See the formula below for estimating capital gain.
Federal Capital Gains Tax is applied as follows:
|Filing Status and Annual Income (2016)||Federal Long-Term Capital Gains Tax: Investment Real Estate|
|Single||Married Filing Jointly|
|$0 to $37,650||$0 to $75,300||0%|
|$37,651 to $415,050||$75,301 to $466,950||15%|
Depreciation Recapture Tax applies to the gain realized by a taxpayer upon the sale of an asset that had previously provided an offset to ordinary income through depreciation deductions.
- Depreciation of real estate taken in prior years is taxed at a rate of 25%.
- Depreciation of personal property assets taken in prior years is taxed at ordinary tax rates.