Capital Gains and Tax Brackets
Long-term vs. Short-term Capital Gains
Long-term Capital Gains
Long-term capital gains are taxed at lower rates than short-term capital gains. They apply to assets held for more than one year. The maximum tax rate for long-term capital gains is 20%, and it only applies to individuals with taxable income over $445,850 (single) or $496,600 (married filing jointly) in 2023.
Short-term Capital Gains
Short-term capital gains are taxed at the same rate as ordinary income, which can be as high as 37%. They apply to assets held for one year or less.
Conclusion
Understanding the difference between long-term and short-term capital gains can help you optimize your tax strategy. By holding assets for more than one year, you can take advantage of lower tax rates and potentially save money on your tax bill.
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