Starting January 1, 2013, the capital gains rates, as amended by the American Taxpayer Relief Act of 2012, are as follows for individuals:

  1. 0% applies to the adjusted net capital gains if the gain would otherwise be subject to the 10 or 15 percent ordinary income tax rate.
  2. 15% applies to adjusted net capital gains if the gain would otherwise be subject to the 25, 28, 33, or 35 percent ordinary income tax rate.
  3. 20% applies to adjusted net capital gains if the gain would otherwise be subject to the 39.6 percent ordinary income tax rate beginning after December 31, 2012.

Adjusted net capital gain is net capital gain on long-term assets (assets held for more than one year), excluding certain gains that are taxed at specific higher rates. Individuals are subject to the 39.6 percent ordinary income tax rate beginning in 2013 to the extent their taxable income exceeds the applicable threshold amount of:

  • $450,000 for married filing jointly and surviving spouse
  • $425,000 for head of household
  • $400,000 for single individuals
  • $225,000 for married individuals filing separate returns

Prior to 2013, the highest tax rate on net capital gain was 15%. However, the only change from 2012 rates is the 20% rate, applied as described, above, meaning that higher income individuals and families will be the most significantly impacted by the change.

Here are some examples of the computations for a higher income taxpayer:

Example 1: Assume in 2013, joint filers with $475K in net capital gain and $200K in ordinary income:

  • $200K ordinary income will be taxed under the regular income tax tables, which for 2013 indicate a $43,465.50 tax.
  • $475K capital gain is taxed
  • $250K of $475 net capital gain at 15 percent ($450K threshold less $200K ordinary income) = $37,500
  • The remainder of the net capital gain $225K ($475K less $250K that was taxed at 15 percent) is taxed at 20 percent = $45,000

Total tax liability: $43,465.50 on $200K ordinary income and $82,500 on $475K net capital gain.

Example 2: Assume in 2013, joint filers with $200K in net capital gain and $475K in ordinary income:

  • $475K ordinary income will be taxed under the regular income tax tables, which for 2013 indicate a $135,746 tax.
  • $200K capital gain is taxed
  • All of $200K net capital gain at 20 percent ($450K threshold already exceeded by $475K in ordinary income) = $40,000.

Total tax liability: $135,746 on $475K ordinary income and $40,000 on $200K net capital gain.

Capital gains have multiple facets and computing them can get complicated. If you have any questions, feel free to call 417-881-0145.

written by Chelsey Dollarhide, staff accountant