Proper planning can help you time your transactions and make tax-efficient investing decisions. In December 2017, the Tax Cuts and Jobs Act changed the brackets for long-term capital gains and dividends. From 2018-2025, the rates have their own brackets which are no longer tied to the ordinary income brackets. Below are the 2019 brackets for long-term capital gains and dividends:

Capital Gains & Losses

Gains on assets held longer than a year are treated as long-term capital gains, subject to a 20% maximum rate for individuals.

Under the Patient Protection and Affordable Care Act (PPACA), higher-income taxpayers will pay a 3.8% Medicare surcharge on net investment income if income threshold amounts exceed $200,000 for single filers or $250,000 for joint filers. Thus, the top tax rate for these higher-income taxpayers is 23.8% for long-term gains and 40.8% for short-term capital gains.

It is important to keep in mind that capital gains attributable to depreciation from real estate held longer than 12 months are taxed at 25%, and the gain on collectibles and certain small business stock is taxed at 28%. In addition, short-term gains on assets held one year or less are subject to tax at your regular income tax rate.

2020 Long-Term Capital Gains and Dividend Brackets
SingleJointHead of Household
0% tax bracket$0-$40,000$0-$80,000$0-$53,600
15% tax bracket$40,001-$441,450$80,001-$496,600$53,601-$469,050
20% tax bracketover $441,450over $496,600$469,050

Timing Is Everything

When it comes to investing, timing is everything. So, unless you risk a significant loss by holding a volatile stock, consider the tax benefits of holding it for at least a year and one day. Even if the stock price drops, you may cut your taxes on the profit nearly in half if you wait.

Timing is also important at the end of the year. If you have cashed in some big gains during the year, review your portfolio for unrealized losses. You may want to sell off stock unlikely to rebound and use the losses to offset your gains. If you end up with more losses than gains, you can use $3,000 against ordinary income (i.e., compensation, dividends, and interest) and carry over remaining losses to next year.

Always review gains and losses before the end of the year so you can offset gains and make sure you have paid enough in estimated taxes.

When selling shares of stock purchased at different prices and at different times, inform your broker beforehand that you want to sell the shares with the highest basis. This can minimize taxable gain or maximize deductible loss.