LIMITED TIME: Start investing with Acorns,
get a $20 bonus investment
3 min

Long-Term Capital Gains Tax for 2022

Jan 31, 2023
in a nutshell
  • Long-term capital gains tax is typically due when you hold onto an asset for over a year and sell it for a profit.
  • This tax is usually less expensive than regular income tax — it's charged at a flat rate.
  • Keeping track of your capital gains can help you better calculate your potential profit when you sell assets.
Image of If you sell any of your assets for a profit, you may owe long-term capital gains tax. Here’s a guideline to help determine how much you may owe.
in a nutshell
  • Long-term capital gains tax is typically due when you hold onto an asset for over a year and sell it for a profit.
  • This tax is usually less expensive than regular income tax — it's charged at a flat rate.
  • Keeping track of your capital gains can help you better calculate your potential profit when you sell assets.

The goal of investing is to make money — and when you do, you normally have to pay tax on it, just like any other income you earn. But investment income is often taxed differently from your regular earned income. 

When you sell an asset for a profit, it’s known as a capital gain. Assets could include real estate, cars, businesses, or investment securities (such as stocks and bonds).

The amount of tax you will owe on any gain will depend, in part, on how long you held, or owned, the asset.

What is long-term capital gains tax? 

You will normally owe long-term capital gains tax when you earn a profit by selling assets that you've owned for more than one year. 

While other income is taxed according to your tax bracket, long-term capital gains are typically taxed at a flat rate. The rates for the long-term capital gains tax range from 0% to 20% and are generally lower than regular income tax brackets

One reason for the lower rate is that investing requires risk, so the promise of a lower tax rate on any returns can help investors justify that risk. A lower tax rate on long-term capital gains can encourage investing and can even help stimulate economic activity.   

Short-term vs long-term capital gains tax

Short-term capital gains are the profits you make from selling assets you’ve held for one year or less. Short-term gains are commonly taxed according to your regular income tax bracket, which range from a tax rate of 10% to 37%, depending on your income level. 

To benefit from the lower tax rates of long-term capital gains, you have to hang on to an asset for at least one year before selling it. Some assets, such as real estate, have different rules to qualify as long-term capital gains.

How does the long-term capital gains tax work?

The long-term capital gains tax isn't charged until you sell the asset and make a profit. When you do, the tax is owed for the tax year in which you sold the asset. 

Say you purchased $1,000 worth of stock in April. By December, its value has risen to $1,500 and you sell it to buy holiday gifts. You’ve made a short-term capital gain of $500. However, you’ll have to pay short term capital gains taxes on those earnings. If you’re in the 24% tax bracket, you’ll have to pay the IRS $120 of your $500 profit. That leaves you with a net gain of $380.

However, say you held the stock longer, until the following June, when its value had risen to $1,800. If you sell it then, you have a long-term capital gain of $800. If you fall in the 20% income tax bracket, you now will have to pay the IRS $160 in long-term capital gains tax. Your net profit will be $640.

2022 long-term capital gains tax

If you sold qualifying assets for a profit in 2022 and you haven’t yet filed or paid taxes for that year, you’ll normally owe long-term capital gains tax of either 0%, 15%, or 20%, based on your earned income for the year.

Filing status

0%

15%

20%

Single

Up to $41,675

$41,676 to $459,750

Over $459,750

Head of household

Up to $55,800

$55,801 to $488,500

Over $488,500

Married filing jointly

Up to $83,350

$83,351 to $517,200

Over $517,200

Married filing separately

Up to $41,675

$41,676 to $258,600

Over $258,600

For example, if you’re married and file taxes jointly, it's possible you won’t owe any long-term capital gains tax if your income is under $83,350. 

2023 long-term capital gains tax

If you sell or have already sold qualifying assets in 2023, you'll likely owe either 0%, 15%, or 20% on your long-term capital gains, based on your earned income for the year. 

Filing status

0%

15%

20%

Single

Up to $44,625

$44,626 to $492,300

Over $492,300

Head of household

Up to $59,750

$59,751 to $523,050

Over $523,050

Married filing jointly

Up to $89,250

$89,251 to $553,850

Over $553,850

Married filing separately

Up to $44,625

$44,626 to $276,900

Over $276,900

For example, a single taxpayer earning $100,000 will owe 15% in long-term capital gains tax, and a married couple filing jointly and earning $80,000 will owe nothing in long-term capital gains tax.

How to lower or avoid long-term capital gains tax

If you want to lower your long-term capital gains tax liability, these potential strategies could help. 

Sell underperforming assets

When you make a profit on the sale of an investment, capital gains taxes kick in — but when you lose money on the sale of an investment, you may be able to reduce your tax liability. 

If you have some underperforming investments that have lost value, you can sell them at a loss and the IRS may allow you to use some of your losses to cancel out your gains. For example, if you have a capital gain of $2,000 this year, but you sell another stock at a loss of $1,500, you could end up with a taxable capital gain of only $500. If you have no capital gains, you can still use capital losses to reduce your taxable income by up to $3,000 per year, in some situations. This can be a good strategy for cleaning out the underperforming assets in your investing portfolio while still taking advantage of tax benefits. 

But if you sell an investment at a loss and then buy a similar asset within the next 30 days, the IRS considers it a “wash sale,” and you lose the tax benefits.

Keep track of your investments

Before selling any real estate, stock, or any other investment, monitor your holding period, or the length of time you've owned it. If you’ve held an asset for less than one year, you may want to avoid selling it to keep your tax bill lower.

And if you're investing for the long-term, consider using a robo-advisor like Acorns Invest. You can benefit from computer algorithms that keep your portfolio balanced and adjusted based on your risk tolerance — we'll recommend a portfolio for you based on your answers to a few short questions.

The views expressed in the articles above are generalized and may not be appropriate for all investors. Carefully consider your financial situation, including investment objective, time horizon, risk tolerance, and fees prior to making any investment decisions.  The article is for informational and educational use only.  This is not a recommendation to buy, sell, hold, or roll over any asset, adopt an investment strategy, or use a particular account type. This information does not consider the specific investment objectives, tax and financial conditions or particular needs of any specific person. Investors should discuss their specific situation with their financial and/or tax professional.  Acorns does not provide tax, legal or financial advice. 

Nancy Mann Jackson

Nancy Mann Jackson is an award-winning journalist who specializes in writing about personal finance, real estate, business and other topics. 

Acorns Logo
Acorns
Invest spare change
Get started Get the app