Question

Capital gains get preferential treatment for individuals.Discuss how cap gains are determined and taxed for individuals.

Answer 1

Capital gains and losses are classified as long term if the asset was held for more than one year, and short term if held for a year or less.

Short-term capital gains tax rate:

All short-term capital gains are taxed at the regular income tax rate. From a tax perspective, it's usually better to hold onto investments for more than a year.​

Long-term capital gains tax rate:

The tax rate paid on most capital gains depends on the income tax bracket:

• Those in the 10 percent and 15 percent income tax brackets pay no capital gains tax.
• Those in the top income bracket pay 20 percent. In 2017, it's 39.6 percent. Trump's tax act changes the top rate to 37 percent in 2018-2025.
• Everyone else pays a 15 percent tax on capital gains.

Long-term capital gains on collectibles, such as stamps, coins, and precious metals, are taxed at 28 percent.

In 2013, the Affordable Care Act raised rates on long-term capital gains. It applies to singles who make more than $200,000 a year, married couples filing jointly who earn more than $250,000 jointly, and married couples filing separately who earn more than $125,000 a year. They must pay an extra 3.8 percent tax on the lesser of (a) investment income such as dividends and capital gains or (b) adjusted gross income that is above the threshold.