U.S. Tax Preparation Worldwide   James Maertin CPA

 
  Home    About     Get Started     Tax Guide     Fees     Pay Fee     Refund Status      Testimonials     Links     Policies

 

Tax Guide 

IRS Tax Law Changes

Americans Abroad

Capital Gains, Interest and Dividends

Deductions

Dependents

Education Credits, Scholarships

Foreign Bank Reporting

Foreign Nationals

Social Security, Medicare, Self Employment Tax

State Taxes

Tax Deadlines, Extensions, Late Payments, Estimated Tax

Tax Resident, Nonresident, Dual Status

Other Topics

Capital Gains


 

When you sell a capital asset, the sale usually results in a capital gain or loss. A capital asset includes most property you own and use for personal or investment purposes.

Residents (Form 1040):

Short-term capital gains (assets held a year or less) are taxed as ordinary income. Therefore, for 2018, the nominal tax rate will be whatever tax bracket you are in (10%, 12%, 22%, 24%, 32%, 35% or 37%).

Long-term capital gains (assets held more than a year) are taxed at either 0%, 15% or 20% (see table below). 

There are three exceptions:

1. The taxable part of a gain from selling Section 1202 qualified small business stock is taxed at a maximum 28% rate.
2. Net capital gain from selling collectibles (such as coins or art) is taxed at a maximum 28% rate.
3. The part of any net capital gain from selling Section 1250 real property that is required to be recaptured in excess of straight-line depreciation is taxed at a maximum 25% rate.

2018 Long-Term Capital Gains Tax Brackets

Long-Term Capital Gains Tax Rate Single Married Joint Married Separate Head of Household

0%

$0 - $38,600

$0 - $77,200

$0 - $38,600

$0 - $51,700

15%

$38,601 - $425,800

$77,201 - $479,000

$38,601 to $239,500

$51,701 - $452,400)

20%

$425,801 or more

$479,001 or more

$239,501 or more

$452,401 or more

For example, a married couple pays no capital gains tax if their total taxable income is no more than $77,200.  They'll pay 15% on capital gains if their taxable income is $77,201 to $479,400.  If their taxable income is over $479,001, they'll pay 20%.  Taxable income is line 10 on 2018 Form 1040.

Sale of Your Home

If you have a capital gain from the sale of your main home, you may qualify to exclude up to $250,000 of that gain from your income, or up to $500,000 of that gain if you file a joint return with your spouse. Publication 523Selling Your Home, provides rules and worksheets. 

Qualifying for the Exclusion

In general, to qualify for the Section 121 exclusion, you must meet both the ownership test and the use test. You're eligible for the exclusion if you have owned and used your home as your main home for a period aggregating at least two years out of the five years prior to its date of sale. You can meet the ownership and use tests during different 2-year periods. However, you must meet both tests during the 5-year period ending on the date of the sale. Generally, you're not eligible for the exclusion if you excluded the gain from the sale of another home during the two-year period prior to the sale of your home. Refer to Publication 523 for the complete eligibility requirements, limitations on the exclusion amount, and exceptions to the two-year rule.

Nonresidents (Form 1040NR):

If you are physically present in the U.S. for 183 days or more during the year, no matter what type of visa you are on, U.S. source capital gains (i.e., stock) are taxable to you.  A 30% flat tax rate will apply, unless a treaty between the U.S. and your home country reduces or eliminates the tax. 

If you are physically present in the U.S. for less than 183 days during the year, there is no tax on most capital gains unless they are directly linked to the conduct of your trade or business.  Gain from the sale of U.S. real property is not tax exempt. 

Net Investment Income Tax

Individual taxpayers are liable for a 3.8% net investment income tax on the lesser of their net investment income, or the amount by which their modified adjusted gross income exceeds the statutory threshold amount based on their filing status. 

The statutory threshold amounts are:

In general, net investment income includes, but is not limited to: interest, dividends, capital gains, rental and royalty income, and non-qualified annuities.