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Capital Gains Taxes: 3 Things You Need to Know

After five years of a raging bull market in stocks, many investors are sitting on huge capital gains. But it's easy to get confused about what tax rates you'll pay on your capital gains when you sell.

In the following video, Dan Caplinger, The Motley Fool's director of investment planning, looks at the rules governing capital gains, noting that short-term capital gains on assets held for a year or less are subject to ordinary income tax rates. For long-term capital gains on assets owned longer than a year, rates of 0%, 15%, or 20% can apply depending on your regular tax bracket. But Dan notes that some assets don't qualify for those lower rates, citing examples like collectibles and the bullion ETFs SPDR Gold Shares (NYSEMKT: GLD  ) and iShares Silver Trust (NYSEMKT: SLV  ) as subject to a higher maximum rate of 28%. Dan also goes through depreciation recapture and the special 25% rate that applies in those circumstances. Dan concludes that it's important to know the tax impact of your selling decisions before you pull the trigger, so you'll avoid nasty surprises at tax time.

Don't pay more tax than you have to
Knowing about capital gains tax is just one way to stay ahead of the IRS. With the right planning, you can take steps to take control of your taxes and potentially even lower your tax bill. In our brand-new special report "How You Can Fight Back Against Higher Taxes," the Motley Fool's tax experts run through what to watch out for in doing your tax planning this year. With its concrete advice on how to cut taxes for decades to come, you won't want to miss out. Click here to get your copy today -- it's absolutely free.

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Dan Caplinger

Dan Caplinger has been a contract writer for the Motley Fool since 2006. As the Fool's Director of Investment Planning, Dan oversees much of the personal-finance and investment-planning content published daily on With a background as an estate-planning attorney and independent financial consultant, Dan's articles are based on more than 20 years of experience from all angles of the financial world.

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