Ghada Burton Discusses How the New Tax Cuts and Jobs Act Treat Capital Gains?

Ghada Burton
Jun 10 · 3 min read

The Tax Code has always shown bias in favor of long-term investment. This is evidenced by the traditionally lower tax rates imposed on investment gains also known as capital gains if held for a long term. In general, capital gains are income or profits derived from the sale of investment assets such as stocks, or similar instruments (including real estate, which are subject to special rules and we will not cover in this transmission) held for a certain period. Ghada Burton from San Francisco, California suggests the gain is considered short term if the investment asset is held for a period of one year or less. Short term gains are taxed at the taxpayer’s regular marginal tax rate as ordinary income.

On the other hand, gains are considered long term if the investment asset is held for a period of more than one year. The Tax Cuts & Jobs Act applies the long-term capital gains preferential tax rates of 0%, 15%, and 20% to new marginal tax brackets depending on your filing status.

For example: Ghada Burton says married taxpayers filing jointly will pay 0% on long term capital gains if their taxable income bracket falls within $0- $78,750, 15% if their taxable income bracket falls within $78,751-$488,850, and 20% capital gains rate if taxable income bracket is over $488,850. (A different bracket applies to other filing status such as single or married filing separately etc.).

Planning Tips:

As an example, if you are married filing jointly and your taxable income is $65,000, you will fall in the 12% ordinary income bracket. Ghada Burton says to assume that your investment gains at the one-year anniversary holding period are $10,000. If you sell this investment then, you are taxed $1,200 on this gain. This is because the gain is treated as short term taxed at your ordinary marginal tax rate of 12%. However, if you wait and sell this asset one day later to qualify as long-term capital gain, you will pay $0 on this gain, a saving of $1,200. This is because from the table above, the capital gains rate is 0% on taxable income bracket between $0 and $78,750 for this filing status.

This brief guide is not intended as tax advice. Ghada Burton advised taxpayers to consult with their tax advisors on tax matters specific to their situation.

Ghada Burton

Written by

Expert in Corporate Taxation & Restructuring