Does Capital Gains Tax Include State Taxes?

Federal capital gains tax does not include state capital gains tax. Capital gains are profits you make when you sell an asset such as land, a business, stocks or art. Capital gains you make during the year are reported as income on your tax return. They’re considered short-term if you owned the asset for less than a year. They’re considered long-term if you owned it for more than a year.

Tip

Capital gains are taxed separately by the IRS and the state you live in.

Short-term capital gains are usually taxed at the same rate as the rest of your income. Long-term capital gains are taxed at a percentage rate from 0 to 20 percent based on your income and filing status. Capital gains tax rates for long-term assets are usually less than those for short-term assets.

State capital gains tax is separate from and in addition to federal capital gains tax. Historically, California’s capital gains tax rates are the highest. North Dakota has the lowest. Nine states have no capital gains tax at all because they have no income tax. They are Alaska, Florida, Nevada, New Hampshire, South Dakota, Tennessee, Texas, Washington and Wyoming.

Capital Gains Tax Exception

When you sell your home, in most cases, you do not have to pay capital gains tax on the profit. To qualify for this exemption the home has to be your primary residence for at least two out of the last five years. Additionally, you can only claim this exemption once every two years.

Capital Gains Tax Rates 2018

While some states’ rates have gone up a bit, nothing changed in federal capital gains taxes for the 2018 tax year. The definitions of short- and long-term assets remain the same. Short-term capital gains are still taxed according to your tax bracket along with your earned income. Long-term rates are still capped at 20 percent. Check your state’s capital gains tax rate on your state’s website.

Taxable capital gains are documented and reported on the IRS’s Schedule D and transferred to Form 1040. When you file for 2018 you’ll see an all-new Form 1040. It’s still in draft form, but it looks like it will be about half the length of the old one. It’s also supposed to replace Forms 1040-A and 1040-EZ. The idea is to get more taxpayers using the same form and supplementing it with schedules as needed.

Capital Gains Tax Rates 2017

Capital gains for the 2017 tax year are also documented and reported on Schedule D. Transfer the information from Schedule D’s line 16 to 2017’s Form 1040’s line 13. The maximum short-term capital gains tax for 2017 is 39.6 percent, the highest bracket for regular earned income. Long-term capital gains tax for 2017 ranges from 0 percent to 20 percent depending on your tax bracket.

Capital gains tax calculators are available online to help you figure out how much federal and how much state capital gains tax you’ll have to pay. You’ll need to know the asset’s initial value, what you sold it for and how long you owned it. You’ll also have to enter your city, state, income and filing status. The calculator gives you both a total and a breakdown of federal and state taxes. Be sure the calculator you’re using is for the tax year you want to number crunch.

About the Author

LeDona Withaar has over 20 years’ experience as a securities industry professional and financial manager. She was an auditor for the National Association of Securities Dealers, a compliance manager for UNX, Inc. and a compliance specialist at Capital Group. She has done volunteer work in corporate development for non-profit organizations such as the Boston Symphony Orchestra. LeDona has an MBA from Simmons College in Boston, Massachusetts and a BA from Mills College in Oakland, California. She is currently a teacher and horse rancher.


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