If you have shares, real estate, or even crypto assets, you might need to pay capital gains tax as each is declared “property” to the IRS. When understanding capital gains tax, you can defer the amount of tax paid. To learn more about this, you must have a fundamental knowledge of the charge.
What is capital gains tax?
Capital gains tax is tax paid by investors on the profit made for an asset sale. The amount of tax required by the IRS will depend on three factors: How long you held the asset before selling, taxable income, and filing status.
These taxes apply to what the IRS classifies as “Capital Assets.” Therefore, this can include investments like real estate, cars, boats, bonds, stocks, or cryptocurrency.
Your holding period, the time between the purchase and sale of an asset, will determine how much tax needs to be paid. These are categorized in two timeframes:
- Short-term – is a tax on profits from selling an asset held for a period of less than a year. The tax rate on short-term capital gains is equivalent to your standard income tax rate, commonly referred to as your tax bracket.
- Long-term – is a tax on the earnings made from the sale of a long-held asset (longer than a year). Depending on your taxable income and filing status, the long-term capital gains tax rates are 0%, 15%, or 20%. In general, they are lower than short-term capital gains tax rates.
As seen, understanding capital gain tax is essential for investors. Knowing this allows you to reduce the number of short-term investments (highly taxable) and transform them into long-term (less taxable).
2022 capital gains tax rates
2022 capital gains tax is required for April 2023. If they’re in the long-term holding category, then you’ll need to pay the following rates.
Tax-filing status | 0% tax rate | 15% tax rate | 20% tax rate |
Single | $0 to $41,675. | $41,676 to $459,750. | $459,751 or more. |
Married, filing jointly | $0 to $83,350. | $83,351 to $517,200. | $517,201 or more. |
Married, filing separately | $0 to $41,675. | $41,676 to $258,600. | $258,601 or more. |
Head of household | $0 to $55,800. | $55,801 to $488,500. | $488,501 or more. |
Please note this does not account for short-term capital gains because these are taxed as ordinary income. Therefore, in 2022, this could be either 10, 12, 22, 24, 32, 35, or 37 percent, depending on your income bracket.
Do you pay capital gains tax on crypto?
Although many look at crypto as tax-free, they’re wrong. In 2014, the IRS declared crypto as a capital asset, meaning it’s eligible for capital gains tax.
As you know, these taxes are only required from the profits once sold. For example, if you acquire $1,000 of cryptocurrency and then sell it for $1,500, you must declare and pay taxes on the $500 profit. However, if you buy and hold cryptocurrency, it isn’t taxable.
How to defer capital gains tax with crypto
In recent years, investors have made a considerable amount of their crypto investments. Though this is excellent, if you want to exchange it for a fiat currency, goods, or services, or even trade it with another cryptocurrency, you’ll trigger a taxable event and will then need to pay capital gains tax.
However, there are ways to defer capital gains tax on crypto. With our 40+ years of real estate knowledge and years of crypto understanding, we’ve paired them together to offer a new, revolutionary way of investing. By partnering with Bridgecoin, we can help you finance your crypto into cash-flowing real estate and defer your capital gains tax.
To learn more contact a professional representative today.
