Capital Gains Tax Calculator: Estimate Your 2023-2024 Tax Liability

1. What is the difference between short-term and long-term capital gains?

Short-term capital gains are profits from selling assets held for one year or less, taxed at your ordinary income tax rate. Long-term capital gains come from selling assets held for more than one year and are typically taxed at lower rates (0%, 15%, or 20% for most taxpayers).

Example: If you bought 100 shares of XYZ Corp for $5,000 and sold them after 6 months for $5,500, your $500 profit would be a short-term capital gain. If you sold after 18 months, it would be a long-term capital gain.

2. How do I determine my tax rate for capital gains?

Your capital gains tax rate depends on your total taxable income and filing status. For 2023, the long-term capital gains tax rates are:

• 0% for incomes up to $44,625 (single) or $89,250 (married filing jointly)
• 15% for incomes between $44,626 to $492,300 (single) or $89,251 to $553,850 (married filing jointly)
• 20% for incomes above $492,301 (single) or $553,851 (married filing jointly)

3. Can I offset my capital gains with capital losses?

Yes, you can use capital losses to offset capital gains. If your losses exceed your gains, you can deduct up to $3,000 against other income. Any remaining loss can be carried forward to future tax years.

Example: If you have $10,000 in long-term capital gains and $15,000 in long-term capital losses, you can offset all your gains, deduct $3,000 from other income, and carry forward $2,000 in losses to the next tax year.

4. How does the Net Investment Income Tax (NIIT) affect capital gains?

The Net Investment Income Tax (NIIT) is an additional 3.8% tax on investment income, including capital gains, for high-income taxpayers. It applies to individuals with modified adjusted gross income (MAGI) over $200,000 (single) or $250,000 (married filing jointly).

Example: A married couple with MAGI of $300,000 and $50,000 in long-term capital gains would pay 15% capital gains tax plus 3.8% NIIT on their gains, for a total rate of 18.8%.

5. Are there any exceptions to capital gains tax?

Yes, there are several exceptions:

• Primary residence exclusion: Up to $250,000 ($500,000 for married couples) of capital gains on the sale of a primary residence can be excluded if certain conditions are met.
• Inherited property: The cost basis is typically stepped up to the fair market value at the time of inheritance, potentially reducing future capital gains.
• Tax-advantaged accounts: Gains in 401(k)s, IRAs, and other qualified retirement accounts are not subject to capital gains tax.

6. How do capital gains affect my tax bracket?

Capital gains are added to your taxable income, which can potentially push you into a higher tax bracket for your ordinary income. However, the capital gains themselves are taxed at their own rates, not at the higher ordinary income rates.

Example: If a single filer has $80,000 in taxable income and realizes a $30,000 long-term capital gain, their total taxable income becomes $110,000. The $80,000 is taxed at ordinary income rates, while the $30,000 gain is taxed at the applicable capital gains rate.