BOSTON (CBS) – Happy Valentine’s Day!
Capital Gains: This is the money you make if there was a profit when you sell an investment!
Investments that you hold for less than a year and then sell are considered short term gains. And the profit is taxed as ordinary income.
Investments that you hold longer than one year are taxed at a lower rate, a long term capital gains rate. If your gains come from stocks, bonds or mutual funds they will be taxed at either zero percent, 15% or 20%, depending on your marginal tax bracket.
If your capital gain comes from investment real estate it will be taxed at 25%. And if you sold your collectibles such as oriental rugs or antiques and made a profit your capital gains tax rate is 28%. If you sold your household stuff at a yard sale last summer you will not owe taxes on the stuff you sold.
In addition, high income taxpayers may have a 3.8% unearned income Medicare Contribution Tax applied to their capital gains and other net investment income.
Capital Losses: These are losses on your investments. You use your losses against your gains. If you have a net loss you can use up to $3,000 against other income and you get to carry any excess loss forward which is a good thing.
Dividends: Corporations share their profit with their shareholders when they pay dividends from either current income or retained income.
The tax rate on dividends for most taxpayers will be 15% and for taxpayers in the lowest tax brackets it may be 0%. Earn over $400,000 as an individual or $450,000 married and you will pay 20%.
Not all dividends qualify for the lower rate. Dividends paid by money market mutual funds or a Real Estate Investment Trust (REIT) generally do not qualify and will be taxed as ordinary income.
Distributions paid out by co-op banks, mutual savings banks, credit unions, savings and loan associations are often called dividends but are really interest.
One more thing:
Capital Gains & Dividend Tax Rates
|0%||Up to $36,250||Up to $72,850|
|15%||$36,250 to $400,000||$72,850 to $450,000|
|20%||Over $400,000||Over $450,000|