Let’s talk about the taxation of capital gains. Long-term capital gains get favorable rates. Profits from the sale or exchange of capital assets held for over a year are generally taxed at 0%, 15% or 20%.
The rates are based on set income thresholds adjusted annually for inflation. For 2020, the 0% rate applies to taxpayers with taxable income up to $40,000 on single returns, $53,600 for head-of-household filers and $8,000 for married couples filing a joint return. The 20% rate starts at $441,451 for singles, $469,051 for household heads and $496,601 for joint filers. The 15% rate is for filers with taxable incomes between the 0% and 20% break points.
Though most long-term capital gains are taxed at the 0%, 15% or 20% rates some have higher rates. For example, long-term profits on the sale of art, antiques, coins, historical documents and other collectibles have a 28% top rate. Additionally, depreciation recapture from real estate is taxed at as much as 25%.
There’s also the 3.8% surtax on net investment income of single filers with modified adjusted gross income over $200,000…$250,000 for joint filers. It’s due on the smaller NII or the excess of modified AGI over these set amounts. NII includes taxable interest, dividends, gains, passive rents, annuities, royalties, etc.