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2014 Capital Gains Tax Rates: Here's What You Can Expect

You probably know that there are many different kinds of tax rates, which change from time to time. For example, there are 2014 capital gains tax rates and 2014 income tax rates, and so on. Many people don't have a good sense of how to make the most of tax rates -- and thereby pay the least! Don't be one of those people.

In 2014, capital gains tax rates are on many folks' minds, as they are in most years. (And I'm not just talking about investors, as capital gains relate to a range of assets such as your house and your board-game collection and, yes, your stocks.) The main thing to understand about 2014 capital gains tax rates is that the IRS divides capital gains into two categories -- long-term and short-term -- and taxes them differently.

Long-term capital gains are from assets you've held for more than a year. One year is not enough -- it must be at least a year and a day. Short-term gains reflect holdings of one year or less. Note, too, that capital gains are generally taxed only when realized -- i.e., when you sell an asset. If you're sitting on some stock that has doubled in value, you don't owe Uncle Sam any money until you sell it.

The details
So what, exactly, are the 2014 capital gains tax rates? Well, for short-term gains, you're taxed at your ordinary income tax rate, which in 2014 might be just 10% or nearly 40%. (For most folks, it will be 15% or 25%.) 2014 long-term capital gains tax rates, which also apply to qualified dividends, are as follows:

  • 0% if you're in the 10% or 15% marginal income tax brackets
  • 15% if you're in the 25%, 28%, 33%, or 35% marginal income tax brackets
  • 20% if you're in the 39.6% top bracket

These rates are for the 2013 tax year, which you cough up taxes for in 2014. There are a few exceptions for some assets other than stocks. Collectibles, for example, have a 2014 capital gains tax rate of 28%.

It's worth noting that you may be looking back fondly at the 2014 capital gains tax rates not too long from now. Tax-rate changes are always on the table, and some think it's likely that rates will rise, perhaps as early as 2015. The 2014 capital gains tax rates already include a little bump -- those in the highest tax bracket used to pay 15% for long-term gains, but that has been raised to 20%. There's also a 3.8% net investment income surtax for high earners.

What to do
If you think that in the near future capital gains tax rates will be significantly higher than 2014 capital gains tax rates, then you can take some strategic action. You might, for example, sell some assets with big gains this year or next so that you're taxed on them at lower rates. (Home sales are special beasts, though, as $250,000 of gain is excluded from taxation -- $500,000 for couples -- if you follow the rules.) You can also be smart about 2014 capital gains tax rates by offsetting gains with losses. Those stinkers in your portfolio do serve one useful purpose, after all.

Finally, you'd do well to consider hanging on to significantly appreciated assets for more than a year, if it will make a big tax difference to you. Be sure to consider the big picture, though: If it's a stock that has soared and that you think might give up some of that gained ground in the near future, selling now might be wiser than hanging on. Remember, however, that hanging on to healthy and growing stocks for many years remains a terrific path to wealth

Take advantage of this little-known tax "loophole"
Recent tax increases have affected nearly every American taxpayer. But 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 "The IRS Is Daring You to Make This Investment Now!," you'll learn about the simple strategy to take advantage of a little-known IRS rule. Don't miss out on advice that could help you cut taxes for decades to come. Click here to learn more.

Read/Post Comments (3) | Recommend This Article (12)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On December 18, 2013, at 7:43 PM, McTeigue wrote:

    Any easy way to reduce your capital gains taxes is to offset your gains by selling some of your losers, even private stocks, to CapGain Solutions. You'll get the documentation you need to stand up to an IRS audit. It's web based, so it's fast and easy.

  • Report this Comment On February 19, 2014, at 9:56 AM, armcandy77 wrote:

    As Tax Rates for 2014 are for gains that were made in 2013, then the expected Tax Rates for 2015 would be for gains made in 2014. Is this a correct Statement?

  • Report this Comment On February 19, 2015, at 11:52 AM, TrackMagicFormul wrote:

    @armcandy77, I believe you are incorrect. You file your 2014 taxes, using 2014 rates, by April 2015. All the forms say 2014 on them.

    My question is, if I have very low income ($22k) that put me in the 15% tax bracket, can I sell UNLIMITED amounts of my capital gains? I have some longterm stock amounting to over $100k in gains, can I actually sell all of this??

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