Question 1

What are the 2024 capital gains tax rates?

Accepted Answer

Long-term capital gains (assets held 12+ months) are taxed at preferential rates: 0% for income up to $47,025 (single) / $94,050 (MFJ); 15% for income up to $518,900 (single) / $583,750 (MFJ); 20% for income above those thresholds. Short-term capital gains (held less than 12 months) are taxed as ordinary income at rates of 10%-37%. Additionally, the Net Investment Income Tax (NIIT) of 3.8% applies to net investment income for taxpayers with MAGI above $200,000 (single) / $250,000 (MFJ), potentially making the effective top rate 23.8% for long-term gains.

Question 2

How do I calculate capital gains on a home sale?

Accepted Answer

Capital gain on a home sale = Sale Price − Selling Costs − Adjusted Basis. Adjusted basis = Purchase Price + Improvements − Depreciation (if rental). The primary residence exclusion allows you to exclude up to $250,000 of gain (single) or $500,000 (married) if you owned and lived in the home for at least 2 of the last 5 years. Example: bought for $300,000, sold for $700,000, $30,000 in improvements, $20,000 in selling costs. Gain = $700,000 − $20,000 − $330,000 = $350,000. A married couple excludes $500,000, so no tax. A single person excludes $250,000, paying tax on $100,000.

Question 3

What is the Net Investment Income Tax (NIIT)?

Accepted Answer

The Net Investment Income Tax (NIIT) is a 3.8% surtax on net investment income for high earners. It applies to the lesser of: (1) your net investment income (capital gains, dividends, interest, rental income, passive income), or (2) the amount by which your Modified Adjusted Gross Income (MAGI) exceeds $200,000 (single) / $250,000 (MFJ). These thresholds are not inflation-adjusted. For a single filer with $300,000 MAGI and $80,000 in long-term capital gains, NIIT applies to the lesser of $80,000 or $100,000 ($300K − $200K threshold) = $80,000 × 3.8% = $3,040 in additional tax.

Question 4

How can I reduce capital gains taxes?

Accepted Answer

Key strategies to reduce capital gains taxes: (1) Hold assets 12+ months to qualify for long-term rates; (2) Tax-loss harvesting -- sell losing investments to offset gains; (3) Use tax-advantaged accounts (IRA, 401k, HSA) for high-growth investments; (4) Charitable giving -- donate appreciated assets directly to charity (avoid capital gains + get full deduction); (5) Opportunity Zone investments -- defer and potentially exclude gains; (6) 1031 exchange for real estate -- defer gains by reinvesting in like-kind property; (7) Installment sales -- spread gain recognition over multiple years; (8) Qualified Small Business Stock (QSBS) exclusion -- up to 100% exclusion for qualifying startup stock held 5+ years.

Question 5

Do I owe state capital gains tax?

Accepted Answer

Most states tax capital gains as ordinary income at state income tax rates, ranging from 0% (FL, TX, NV, WA, WY, SD, TN -- no income tax) to 13.3% (California, the highest). A few states have preferential capital gains rates: Massachusetts taxes long-term gains at 5% vs. 9% for short-term. New Hampshire taxes only interest and dividends (not capital gains). California notably does not offer a preferential long-term rate -- all gains are taxed as ordinary income at up to 13.3%, making the combined federal + state rate up to 37.1% for high earners on long-term gains.

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