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Business property that is held for one year or less is considered to be held on a short-term basis. If you sell, scrap, retire, or otherwise dispose of a short-term capital asset, any related gains will be taxed at your ordinary income tax rate.
Gain or loss is long-term if you owned for more than a year. Although short-term capital gain is taxed at ordinary income tax rates, long-term capital gains of noncorporate taxpayers are generally taxed at lower rates.
The long-term capital gains tax rate depends upon the type of property and an individual's tax bracket.
For most property, the maximum capital gains rate for higher-income individuals (those that are not in the 10 percent or 15 percent tax brackets) is 15 percent. For 2011, the capital gains tax rate is zero percent for individuals in the 10 percent and 15 percent tax brackets. Thus, the gain on the sale of a capital asset is tax-free for a married couple who files jointly and has a taxable income of $69,000 or less in 2011 and for singles with taxable income under $34,500. For 2012, the zero percent rate applies to married couples filing jointly with taxable income up to $70,700, and to single individuals with taxable income up to $35,350. This special rate for low-income taxpayers is scheduled to increase to 15 percent at the end of 2012.
Special rates for certain property. Capital gains on collectibles (e.g., stamps, antiques, gems, and most coins) are taxed at 28 percent. Unrecaptured gain from the sale of depreciable real estate is taxed at 25 percent.
Small Business Stock. In order to encourage investment in qualified small business stock, Congress has passed a number of laws that provide tax breaks when that stock is sold, provided that the seller has held the stock for more than five years. Gain on sales of qualified small business stock is taxed at 28 percent, but much of the gain can be excluded from income. IRS Publication 550, Investment Income and Expenses, provides more information regarding what types of stock qualify.
|Date Stock Acquired||Rate on Gain not Excluded from Income||Percent Excluded from Gross Income|
|After 9/27/2010 but before 1/1/2011||N/A||100%|
|After 2/17/2009 but before 9/28/2010||28%||75%|
|After 8/10/1993 but before 2/18/2009||50%|
These reduced rates will expire for tax years beginning after December 31, 2012. Unless the tax laws are changed, the capital gains rates that existed for tax years ending before May 6, 2003 will once again apply.