About Long-Term Investment Taxes
Long-term capital gains apply to assets held for a year or more. Long-term investments are taxed at a lower rate than short-term investments held for a year or less. They are taxed using ordinary income tax rates, whereas long-term capital gains are taxed at discounted rates. Long-term investment taxes rate can range from zero to 15 percent depending on the individuals marginal tax bracket.
Period
The holding period is calculated from the day the investment was bought until the day it is sold. According to the IRS Publication 550, “To determine how long you held the investment property, begin counting on the date after you acquired the property. The day you disposed of the property is part of your holding period.” This means that long-term investment money gained is taxed after the investment is sold for profit. The investor can hold on to the investment for years without paying taxes. The taxation occurs after the sale.
Tax Rates
The ordinary income tax bracket that the individual falls under determines the rate applied on the investment. If the individuals’ total income places him in the 10 percent or 15 percent tax bracket, the tax rate is zero percent. If the total income, including the income from capital gain places the individual in the 25 percent tax bracket or higher, the tax rate is 15 percent.
Rules
The capital gains tax applies only to the profit earned after the transaction. It is important for investors to carefully consider the timing of the sale of their investments. They should consider the price as well as the potential for profit. If the investment is used to pay other forms of income such as rent, dividends or interest, this must be declared and taxes paid for the years during which they are earned. This is calculated using the different taxes and rules for each form of income.
Deferments
An investor can defer payment of taxes by buying property that is of equal or higher cost to that which has been sold. To do this, the property has to be tangible or physical assets and not stocks or other forms of paper assets. Replacement property has to be identified within 45 days of the sale, and it must be similar to that which has been sold.