Two factors usually determine the federal capital gains tax rate and state level income tax rate - the time for which the asset is held and the type of the asset invested in. The capital gains chargeable at the state level are the ordinary income taxes. The rates of capital gains tax are dependent on the time of buying of the asset, tax code changes and the income level on an overall basis.
The different rates of taxation of capital gains are:
5% rate
15% rate
25% rate
28% rate
These rates are applicable on the long-term assets, that is to say, capital gains taxes imposed on assets that are held for a period in excess of a year. The tax rate in this case is much less than the regular income tax rate. The income level of the taxpayer is the primary factor while deciding upon the rate of taxation to be imposed.
The tax payers who fall within the income tax bracket of 10% or 15% have to pay capital gains tax at the rate of 5%. This rate is applicable for the long term assets, the properties that are held in excess of a year. The rate of taxation on capital gains remains the same even when an increase in income pushes the taxpayer into the next level in income tax payments.
15% capital gains tax rate is applicable for those who fall in the 25% or more income tax bracket range. This rate applies to long term asset investments. There are not many investors who have an income that is low enough to make them eligible for a 5% tax rate and therefore, the 15% capital gains tax rate is often referred to as “lower capital gains rate”.
When one sells a real estate that has depreciated in value, one qualifies for a 25% capital gains tax rate. This is a preventive measure against double tax breaks.
The 28% capital gains tax rate is applicable for collectibles and small business stocks. If one profits from small business stocks, half of the gains can be excluded from income and the other half is taxable at a rate of 28%.