2022 Capital Gains Tax Rate Thresholds
A capital gain is when you sell an investment or an asset for a profit.
When you realize a capital gain, the proceeds are considered taxable income. The amount you owe in capital gains taxes depends in part on how long you owned the asset: Long-term capital gains are from an asset you’ve held for more than one year, and short-term capital gains apply to profits from selling an asset you’ve held for less than a year.
The taxable income thresholds for the capital gains tax rates are adjusted each year for inflation. The IRS has already released the 2022 thresholds, so you can start planning for 2022 capital asset sales now.
Tax on Net Investment Income
There’s an additional 3.8% surtax on net investment income (NII) that you might have to pay on top of the capital gains tax.
· Net investment income (NII) is income received from investment assets (before taxes) such as bonds, stocks, mutual funds, loans, and other investments (less related expenses).
You must pay the surtax if you’re a single taxpayer with modified adjusted gross income over $200,000, a married couple filing a joint return with modified AGI over $250,000, or a married person filing a separate return with modified AGI over $125,000.
Here’s how capital gains are calculated:
Find your basis. Typically, this is what you paid for the asset, including commissions or fees.
Find you realized amount. This will be what you sold the asset for, less any commissions or fees you paid.
Subtract the basis from the realized amount. If your sale price was higher than your basis price, it’s a capital gain. If your sale price was less than your basis price, it’s considered a capital loss.
· You can calculate capital gains taxes using IRS forms. To calculate and report sales that resulted in capital gains or losses, start with IRS Form 8949. Record each sale, and calculate your hold time, basis, and gain or loss. Next, figure your net capital gains using Schedule D of IRS Form 1040. Then copy the results to your tax return on Form 1040 to figure your overall tax rate.
What are Capital Losses?
Capital losses are when you sell an asset or an investment for less than you paid for it. Capital losses from investments can be used to offset your capital gains on your taxes. Like gains, capital losses come in short-term and long-term varieties and must first be used to offset capital gains of the same type.
