understand the benefit of short and long-term capital gain tax rates, offset your loss with profit, and cut your loss every year with no tax.
when you don’t understand the capital gain tax rate, which leads you to pay a higher level of income tax. nowadays lot of people paying higher taxes in capital gain instead of paying lower taxes. so I guide step by step with some examples, that make you clear and lower your capital gain taxes.
moreover, capital gain tax rates some more complex to understand the tax rate accurately for single, married filing jointly, married filing separately, and head of household because the tax rate for capital gain is consistently changed every year by governments.
so now let’s take a look at how to minimize the capital gain tax rate overall at all times. capital gain means only investment in stock, bonds, and real estate. so don’t confuse your other personal consumption.
Short-term capital gain tax rate
before minimizing your tax rate you have to understand what is short and long-term on your capital gain. however short-term capital gains are included whenever you make an investment in something like stocks, bonds, and real estate and make a profit in less than one year (or) less than 12 months from it.
then it is called short-term capital gain tax. which these short-term capital gains are taxed at the ordinary income level. this type of short capital gain pays tax of at least 24% to 37% currently in 2019 to 2020.
long term capital gain
moreover, long-term capital gains are the same as short-term capital gains but help you to pay very low taxes on your gains. if you buy any asset in real estate and hold it for more than one year (or) 12 months, then you will pay lower taxes on your earnings. something like 10% to 20%
how to offset the loss with profit
additionally to make you deeply clear let me give an example to understand how the capital gain tax rate works.
for instance, if you invest 10000$ in a particular stock. if you hold it for 6 months you will make a profit of 13000$ in your investment. then you pay tax for 3000$ earned on your short-term capital gain tax rate.
on the other hand, if you invest in a bond and that bond makes you profit, which means it pays interest on holding, and if the bond matures after 10 years then at the end of the 10th year your earnings will be taxed at a lower rate which is long term capital gain tax. your tax rate range will be at 10%.
capital gain stocks example
moreover, if you buy two stocks Apple and Amazon, you invest in these two stocks before the 2 years, so if you sell these stocks at a profit then you may tax at very low rates but what happens if you lose on any of these stocks?
for instance, in Amazon stock, you make $5000 profit and in Apple stock, you lose 5000$ so now you don’t have to pay any taxes on your earnings. just use your profit to offset your loss every time.
identically what you do if you sell Apple stock with a $2000 loss and you make five thousand dollar profits
on your stock investment, you can only able to offset your two thousand dollars loss, and then you have to pay tax for 3000$ in profits. so don’t be confused in any situation.
how do pay tax if your loss exceeds your profit
sometimes if your loss is more than your profit, what do you do? you can deduct your total loss amount
every year up to 3000$. if you aren’t married joint filling then you can deduct up to 1500$ every year on your tax return.
you have one advantage in capital gain tax rate if you
- no tax up to 250,000$ capital gain on real estate if you are single.
- no tax up to 500,000$ capital gain on real estate if you’re married.
for example, if you buy a house for $150,000 and after two years you sell your house for 520,000$. then if you only tax on twenty thousand dollars, there is no capital gain tax rate for 500. I think now you know how to pay a lower tax on the capital gain tax rate. if you have any doubt about it then feel free to contact us.