Generally, capital gains are taxed according to how long you've held a particular asset – known as the holding period. Profits you make from selling assets you’ve held for a year or less are called short-term capital gains. Alternatively, gains from assets you’ve held for longer than a year are known as long-term capital gains. Typically, there are specific rules and different tax rates applied to short-term and long-term capital gains. In general, you will pay less in taxes on long-term capital gains than you will on short-term capital gains.
Line 16 of Form 1040 will tell you what forms and tables were used to calculate the tax on your taxable income (Line 15). If most of that income was long-term capital gains and you are filing a joint return, the first 80K of those long-term gains are taxed at zero percent (0%).
2020 Long-Term Capital Gains Tax Rates This guide has both short-term and long-term capital gains rates for 2020.
As previously mentioned, different tax rates apply to short-term and long-term gains. However, if your investments end up losing money rather than generating gains, those losses can affect your taxes as well. However, in this case, you can use those losses to reduce your taxes. The IRS allows you to match up your gains and losses for any given year to determine your net capital gain or loss.
- If after fully reducing your gains with your losses and you end up with a net loss, you can use up to $3,000 of it per year to reduce your other taxable income.
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