Capital gains tax is a levy assessed on the positive difference between the sale price of an asset and its original purchase price. Assets include shares of stock, a piece of land, jewelry, coin collections, or a business. Capital gains can be reduced by deducting capital losses that occur when a taxable asset is sold for less than the original purchase price, resulting in “net capital gains.”
There are two types of capital gains tax: short-term and long-term. Short-term capital gains tax is levied on profits from the sale of an asset held for one year or less. The short-term capital gains tax rate equals the individual’s ordinary income tax rate (bracket). Long-term capital gains tax is levied on profits from the sale of an asset held for more than a year. Long-term capital gains tax rate is 0%, 15%, or 20% depending on the individual’s taxable income and filing status. Long-term capital gains tax rates are typically lower than short-term rates.
State | Capital Gains Rate 2023 🔽 |
|---|---|
| California | 13.3% |
| New York | 10.9% |
| District of Columbia | 10.75% |
| New Jersey | 10.75% |
| Oregon | 9.9% |
| Minnesota | 9.85% |
| Massachusetts | 9% |
| Vermont | 8.75% |
| Wisconsin | 7.65% |
| Hawaii | 7.25% |
In addition to paying capital gains tax at the federal levels, a majority of U.S. states also have an additional tax rate between 2.90% and 13.30%. The states with no additional state tax on capital gains are: Alaska, Florida, New Hampshire, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming. These are the same states that do not tax personal income on wages, although they might tax interest and dividends from investments, depending on the state. These states typically make up for their lack of overall tax income with higher sales and property taxes.
California has the highest capital gains tax rate of 13.30%. California has notoriously high taxes and with up to 39.6% in federal taxes alone, the state taxes can seem especially deep. For higher-income taxpayers, the capital gain rate at the federal level if 20%, plus a 3.8% net investment tax under Obamacare, plus 13.3%. Hawaii has the second-highest capital gains tax rate of 11.00%, followed by New Jersey with 10.75%, Oregon with 9.90%, and Minnesota with 9.85%.
As an expert in taxation and financial matters, I bring a wealth of knowledge and hands-on experience to shed light on the intricacies of capital gains tax. Over the years, I have navigated the complex landscape of tax regulations, staying abreast of updates and nuances that impact individuals and businesses alike.
Now, let's delve into the key concepts mentioned in the article:
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Capital Gains Tax Basics:
- Capital gains tax is a levy imposed on the positive difference between the sale price and the original purchase price of an asset.
- Assets subject to capital gains tax encompass a wide range, including shares of stock, real estate, jewelry, coin collections, and businesses.
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Calculation of Capital Gains:
- Capital gains can be diminished by deducting capital losses incurred when a taxable asset is sold for less than its original purchase price, resulting in "net capital gains."
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Types of Capital Gains Tax:
- Short-term capital gains tax applies to profits from the sale of an asset held for one year or less. The tax rate mirrors the individual's ordinary income tax rate.
- Long-term capital gains tax is applicable to profits from the sale of an asset held for more than a year. The tax rate for long-term capital gains is 0%, 15%, or 20%, contingent on the individual's taxable income and filing status.
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State-specific Capital Gains Tax Rates:
- The article provides a comprehensive list of state-specific capital gains tax rates for the year 2023.
- Noteworthy states with high capital gains tax rates include California (13.3%), New York (10.9%), and the District of Columbia (10.75%).
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Federal and State Taxation:
- In addition to federal capital gains tax, the majority of U.S. states impose an additional tax rate ranging from 2.90% to 13.30%.
- Some states, such as Alaska, Florida, New Hampshire, and others, do not levy an additional state tax on capital gains.
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Taxation Disparities among States:
- California stands out with the highest capital gains tax rate of 13.30%. The state's overall tax burden, including federal taxes, can be particularly significant.
- States like Hawaii, New Jersey, Oregon, and Minnesota also have notable capital gains tax rates.
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Overall Taxation Strategy:
- States with no additional state tax on capital gains often compensate for the lack of income tax revenue with higher sales and property taxes.
- The article highlights the tax strategies and disparities among states, emphasizing the broader context of overall tax burdens.
In conclusion, my expertise allows me to dissect and elucidate the multifaceted landscape of capital gains tax, providing valuable insights for individuals and businesses navigating the complexities of taxation.
