It's important to note that the tax rates on capital gains from the sale of stocks, bonds, cryptocurrencies, real estate and other capital assets are not necessarily the same as the tax rates mentioned above for salaries, interest, retirement account withdrawals, and others ordinary income. To determine the effective tax rate, divide the total tax due (line 1 of Form 1040) by your total taxable income (line 1). When a category expands, you're less likely to end up in a higher tax bracket if your income stays the same or doesn't increase at the rate of inflation from one year to the next. Before coming to Kiplinger, he worked for Wolters Kluwer Tax %26 Accounting and Kleinrock Publishing, where he provided breaking news and guidance for public accountants, tax attorneys and other tax professionals.
Tax credits can lower your tax bill dollar-for-dollar; they don't affect what category you're in. As with ordinary rates and tax brackets, the specific long-term capital gains tax rate that applies depends on your income. The government decides the amount of taxes you owe by dividing your taxable income into parts, also known as tax brackets, and each part is taxed with the corresponding tax rate. And, while they don't reduce taxable income because they're subtracted after taxes are calculated, don't forget about tax credits.
Several provisions of the tax code, including the income thresholds that report federal tax categories, are adjusted annually to reflect the rate of inflation. The progressive tax system means that people with higher taxable incomes are subject to higher federal tax rates, and people with lower taxable income are subject to lower federal tax rates. Depending on your taxable income, you may end up in one of seven different federal income tax categories, each with its own marginal tax rate. Therefore, starting in 2026, tax rates are expected to return to previous rates, which were 10%, 15%, 25%, 28%, 33%, 35% and 39.6%.
Capital Gains Tax The capital gains tax rate that applies to a capital gain depends on the type of asset, its taxable income, and the length of time it held the property sold. For a list of common tax exemptions that you may not have considered, see the 20 most overlooked tax deductions, credits and exemptions. This indexation aims to prevent taxpayers from experiencing category changes, or the process of being pushed to a higher tax bracket due to inflation. Only about 14% of taxpayers itemized their taxes after the approval of the tax reform, or a 17 percentage point drop compared to before the law, according to the Tax Foundation.