Capital Gains Rates
There are two main kinds of income taxes. Ordinary Income 0% to 37%—-this is for wages, interest, most business income, pension income, etc.
The second kind of income is “capital gains” income. This is preferred as the highest tax rate is 20% and the lowest is 0%. This an incentive to invest. If you sell a home, a stock, a bond, etc. You pay tax on your gains. But only at the lower capital gains rates!
You could sell millions of dollars of stocks and have a million $ of gain and pay only 20% capital gain plus 3% net investment income tax rather than 37% ordinary income tax.
On the other side, if all a couple had was $100,000 of capital gains from stocks, they would pay $0.00 of tax due to the capital gain rules.
If you had $150K of total income, including $100K of capital gains you would only be in the 15% tax bracket.
There are many possible scenarios, but most importantly, if more of your money is subject to capital gains you will pay less taxes than at ordinary rates.
There is one trap to watch for—Collectibles! They are taxed at 28%. This would be things like antiques, art, coins, stamps, baseball cards, dolls, etc. We suggest that instead, you donate these items and take a tax deduction, rather than sell. The lower 0-15% gains rates do not apply. Now, if you are in the 37% tax bracket, 28% is still a bit of relief.
