With the new 2018 tax law, capital gains tax rates are now taxed at 0%, 15%, and 20%. You fall into one of these brackets based on your income.
Long-term capital gains taxes come into effect when you’ve owned an asset for longer than a year. Rates here are typically much lower than the regular income tax brackets.
Short-term capital gains taxes are applied to the profits when you sell an asset you’ve owned for less than a year. These are tied to your federal income taxes, and are taxed at the same percentage as the tax bracket in which you qualify.
The special case with short- and long-term capital gains taxes is home sales, which have their own set of rules.
How do you qualify for 0% capital gains?
To qualify for the 0% bracket on capital gains in tax year 2019, a single person must have a total taxable income of $39,375 or below.
Married filing jointly couples must have income under $78,750.
Can you reduce your exposure with 0% capital gains?
- Whenever possible, hold on to an asset for longer than a year to qualify for the long-term capital gains taxes, which are much lower than short-term.
- Another strategy you can use is to re-balance your dividends. Instead of taking the profits from a high-performing asset and reinvesting it into that same fund, use the profits to reinvest into a low-performing asset. Don’t sell those high-performing assets. You’ll avoid capital gains taxes by investing in under-performing assets.
- Carry over your losses. If your net capital loss exceeds the limit you can deduct for the year, the IRS allows you to carry the excess into the next year, deducting it on that year’s return.
Depending on your income level for the year, using the 0% capital gains tax bracket can really help lower your taxes. Speak with Morgan & Associates today for expertly tailored advice that’s exclusive to your tax situation.