Most forms of income are taxable. The most common taxes are taxes on wages. Capital gains taxes are due on income generated by selling an asset. The amount of capital gains tax due depends on several factors, including income and how long the investment was held.
Short-Term versus Long-Term
The capital gains tax rate is determined by multiple factors. One factor is whether the gains are short-term capital gains or long-term capital gains. Typically, an investment held for a longer than one year is considered a long-term capital gain, and an investment held for a period of less than one year is a short-term capital gain.
Short-Term Capital Gains
Short-term capital gains are taxed as ordinary income. In this case, the gains are taxed at the taxpayer's marginal tax rate. These tax brackets are determined by income with higher rates being paid by those with higher income. The possible tax rates for 2011 are 10 percent, 15 percent, 25 percent, 28 percent, 33 percent and 35 percent.
Long-Term Capital Gains
Generally, there are two tax rates that apply to long-term capital gains. The maximum tax rate for long-term capital gains is 15 percent tax. However, the long-term capital gains tax rate for taxpayers with a regular tax rate less than 25 percent is zero.
Special Capital Gains
Capital gains in specific instances may be taxed at different rates. Long-term capital gains derived from the sale of collectibles have a maximum capital gains tax rate of 28 percent. The sale of certain small business stock may be subject to either a 28 percent or 25 percent capital gains tax in limited circumstances.