machinery, furniture and fixtures, and real estate. • Adjusted basis: original price paid for the capital asset, including fees paid for buying the property such as legal and recording fees, surveys and transfer taxes, title insurance and sales commissions. • Short-term capital gain: capital assets held for one year or less before being disposed of. • Long-term capital gain: capital assets held for more than one year before being disposed of. How capital gains are taxed Holding an asset for more than one year before disposing of or selling it has a significant impact on the amount of tax potentially owed to the IRS. That’s because short-term gains are taxed as ordinary income at the normal 2021 tax bracket ranges of 10%, 12%, 22%, 24%, 32%, 35%, and 37%. On the other hand, long-term capital gains tax rates are much lower, ranging between: • 0% for personal incomes of up to $40,400 • 15% for personal incomes of between $40,401 to $445,850 • 20% for personal incomes of $445,850 or higher Short-term vs. long-term capital gains tax liability Let’s look at how capital gains are taxed based on a short-term and long-term holding period. For the purposes of this example, we’ve excluded any additional individual state income tax due. • Adjusted basis = $200,000 • Net sales price = $250,000 • Taxable gain = $50,000 • Capital gains tax due (24% ordinary bracket) = $12,000 Short-term
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