Sometimes the more things change, the more they stay the same. That’s the case with the Tax Cuts and Jobs Act (TCJA) as it relates to capital gains and qualified dividends. What changed? Not a lot, actually.
First of all, the tax reform act retained the same capital gains rates on long-term capital gains and qualified dividends. Long-term capital gains rates apply when a capital asset, like stock, is held for more than one year. Short-term gains (held one year or less) are taxed at ordinary income rates.
You should know, though, that the three capital gains brackets (see our table below) are no longer aligned with the tax rates for ordinary income. These rates apply 2018 through 2025.
Individual Rates for Long-Term Capital Gains and Qualified Dividends
|Tax Rates||Single||Married Joint Filers||Head of Household|
|0%||$0 – $38,600||$0 – $77,200||$0 – $51,700|
|15%||$38,601 – $425,800||$77,201 – $479,000||$51,701 – $452,400|
|20%||$425,801 and up||$479,001 and up||$452,401 and up|
The new rules also retained the 3.8% net investment income tax (NIIT) enacted by Obamacare. So, married taxpayers filing a joint return with income above $250,000 ($200,000 single) also will pay an additional 3.8% on top of the above rates.
Estate, Trust and Kiddie Tax Capital Gains Rates
|Tax Rates||Long-Term Capital Gains and Qualified Dividends|
|0%||$0 – $2,600|
|15%||$2,601 – $12,700|
|20%||$12,701 and up|
The kiddie tax applies when dependent children under age 19 (or 24 if a full-time student) have unearned income like capital gains and qualified dividends. Prior to 2018, the tax was calculated using the parents’ marginal tax rate. Now, there is a separate rate structure for both ordinary income and capital gains. This only applies if the child’s investment income exceeds $2,100.
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