Long term capital gains tax rate irs

If you're planning to sell investments or rebalance your taxable portfolio, you may be less likely to trigger a tax bill in 2023, experts say.

This week, the IRS released dozens of inflation adjustments for 2023, including higher income tax brackets, increased standard deductions, bigger estate tax exclusions and more. 

The agency also bumped up income thresholds for the 0%, 15% and 20% long-term capital gains brackets for 2023, levied on profitable assets held for more than one year.

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"It's going to be pretty significant," said Tommy Lucas, a certified financial planner and enrolled agent at Moisand Fitzgerald Tamayo in Orlando, Florida.

How to know your capital gains tax bracket

With higher standard deductions and income thresholds for capital gains, it's more likely you'll fall into the 0% bracket in 2023, Lucas said.

For 2023, you may qualify for the 0% long-term capital gains rate with taxable income of $44,625 or less for single filers and $89,250 or less for married couples filing jointly.

The rates use "taxable income," calculated by subtracting the greater of the standard or itemized deductions from your adjusted gross income.

By comparison, you'll fall into 0% long-term capital gains bracket in 2022 with a taxable income of $41,675 or less for single filers and $83,350 or less for married couples filing jointly.

The 0% bracket is a 'really good tax planning opportunity'

With taxable income below the thresholds, you can sell profitable assets without tax consequences. And for some investors, selling may be a chance to diversify amid market volatility, Lucas said.

"It's there, it's available, and it's a really good tax planning opportunity," he added.

Whether you're taking gains or tax-loss harvesting, which uses losses to offset profits, "you really have to have a handle on your entire reportable picture," said Jim Guarino, a CFP, CPA and managing director at Baker Newman Noyes in Woburn, Massachusetts.

That includes estimating year-end payouts from mutual funds in taxable accounts — which many investors aren't expecting in a down year — and may cause a surprise tax bill, he said.

"Some additional loss harvesting might make a lot of sense if you've got that additional capital gain that's coming down the road," Guarino said.

Of course, the decision hinges on your taxable income, including payouts, since you won't have taxable gains in the 0% capital gains bracket.

If you sell stocks, mutual funds or other capital assets that you held for at least one year, any gain from the sale is taxed at either a 0%, 15% or 20% long-term capital gains tax rate. Those rates are typically much lower than the ordinary tax rates you'd otherwise pay, which currently can be as high as 37%.

However, which one of those capital gains rates – 0%, 15% or 20% – applies to you depends on your taxable income. The higher your income, the higher the rate.

The taxable income thresholds for the long-term capital gains tax rates are adjusted each year for inflation. The IRS has already released the 2023 thresholds (see table below), so you can start planning for 2023 capital asset sales now. (The tax rate applied to 2023 short-term capital gains – i.e., gains on the sale of assets held for less than one year – are the same tax rates applied to wages and other "ordinary" income.)

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For the 2022 thresholds, see What Are the Capital Gains Tax Rates for 2022 vs. 2021?

Special Capital Gains Tax Rates

There are a few special capital gains tax rates that aren't adjusted annually for inflation. First, a 28% tax rate may apply to gain (or a portion of the gain) from the sale of "qualified small business stock." You will also be hit with a 28% tax on gain from the sale of collectibles, such as art, antiques, stamps, coins, gold, or similar items A special 25% rate also applies to something called unrecaptured Section 1250 gain, which is generally the amount of depreciation previously taken on real property.

The special rates are maximum rates. If your ordinary tax rate is lower than the special rate (i.e., either 10%, 12%, 22% or 24%), your ordinary tax rate may apply to gain on qualified small business stock, Section 1250 gain, or collectibles.

Tax on Net Investment Income

There's also an additional 3.8% surtax on net investment income (NII) that you might have to pay on top of the capital gains tax. NII includes, among other things, taxable interest, dividends, gains, passive rents, annuities, and royalties.

You must pay the surtax if you're a single taxpayer with modified adjusted gross income over $200,000, a married couple filing a joint return with modified AGI over $250,000, or a married person filing a separate return with modified AGI over $125,000.

Rocky is a Senior Tax Editor for Kiplinger with more than 20 years of experience covering federal and state tax developments. Before coming to Kiplinger, he worked for Wolters Kluwer Tax & Accounting and Kleinrock Publishing, where he provided breaking news and guidance for CPAs, tax attorneys, and other tax professionals. He has also been quoted as an expert by USA Today, Forbes, U.S. News & World Report, Reuters, Accounting Today, and other media outlets. Rocky has a law degree from the University of Connecticut and a B.A. in History from Salisbury University.

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