Use capital losses to offset capital gains You can take advantage of this exclusion once every two years. To qualify, you must have owned the home and used it as your primary residence for at least two of the last five years. That limit is $250,000 for single filers and $500,000 for married couples filing jointly. When you sell your home, you get to exclude a certain amount of profit from the sale from your taxable income. Take advantage of the home sale exclusion No tax is due on Roth IRA distributions, as long as you've followed the withdrawal rules. With a traditional IRA or 401(k), you'll pay taxes when you take distributions from the account. You don't have to pay capital gains on any sales within these accounts in the year they occur. Tax-advantaged accounts, such as IRAs and 401(k)s, allow your investments to grow on a tax-deferred or even tax-free basis. Whenever possible, hold onto your investments for more than a year, so they qualify for long-term capital gains rates. There are several ways to minimize or even avoid capital gains taxes. If your income exceeds the threshold, you calculate NIIT on Form 8960 and file it along with your Form 1040 tax return. $125,000 for married couples filing separately.$250,000 for married couples filing jointly.$200,000 for single filers and head of household.The NIIT only applies if your MAGI exceeds the threshold amount for your filing status. The total of your investment income is reduced by any deductions related to investments, such as investment interest expense and expenses related to rental property or royalties, to arrive at net investment income. The NIIT imposes a 3.8% tax on the lesser of your net investment income or the amount by which your modified adjusted gross income (MAGI) exceeds a certain amount. The net investment income tax (NIIT) is a separate tax, but it can have an impact the tax you pay on capital gains as well as other types of investment income. The net investment income tax on capital gainsĬapital gains taxes aren't the only ones investors have to worry about, though. Having your capital gain taxed at long-term rather than short-term rates results in $700 of tax savings. You are still in the 22% tax bracket, and calculate your ordinary income tax as follows:įor long-term capital gains, you fall into the 15% tax bracket, so you calculate your long-term capital gains tax as 15% of $10,000: $1,500.įor 2022, your tax bill is roughly $12,969. Your ordinary income is $72,050 ($85,000 of wages less your $12,950 standard deduction). However, your tax calculation is different. Your total taxable income is still $82,600. Returning to the earlier example, say your $10,000 capital gain qualified for long-term treatment. However, you don't pay 22% on all your income, only income over $41,775 (the top of the 12% tax bracket). To illustrate, say you are a single taxpayer in 2022 with wages of $85,000, short-term capital gains of $10,000, and claim the standard deduction ($12,950). The rate you'll pay depends on your filing status and total taxable income for the year. Short-term capital gains are taxed at ordinary income tax rates, up to 37%. Short-term capital gains don't benefit from a special tax rate The clock begins ticking on the day after you buy the asset, up to and including the day you sell it.
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