Short-Term Capital Gains vs. Long-Term Capital Gains – What’s the Difference?
Have you ever wondered why gains are separated between long-term and short-term when you receive your 1099 at tax time? There is a very good reason for that, and one you might want to consider more carefully when investing.
Short-term capital gains are derived if you hold an investment one year or less before disposing of it. Short-term gains are taxed as “ordinary income,” the same rate you pay on wages or business profits.
Long-term capital gains, on the other hand, are generally taxed no higher than 20% and could be taxed at 0%, depending on your income. See the table below:
|Tax Filing Status||Income Range at 0% Rate||Income Range at 15% Rate||Income Range at 20% Rate|
|Single||0 – $40,400||$40,401 to $445,850||> $445,850|
|Married Filing Jointly||0 – $80,800||$80,801 to $501,600||> $501,600|
|Married Filing Separately||0 – $40,400||$40,401 to $250,800||> $250,800|
|Head of Household||0 – $54,100||$54,101 to $473,750||> $473,750|
Exceptions to the long-term capital gains tax rate are collectibles such as art, jewelry, and precious metals. These are taxed at 28% regardless of your income. Bear in mind, though, that tax rates on ordinary income range from 10% to 37%.
Be sure to keep this information in mind when managing your investments. It could make a BIG difference come tax time!