Capital Gains Tax Rate

The advantage of capital gains, as opposed to ordinary income, is that the maximum tax rate on capital gains for most types of property held for more than one year by most taxpayers is 15 percent. (In contrast, the top ordinary income tax rates are all higher than this, with the top rate through 2014 at 39.6 percent.)

For 2014, the capital gains rates are as follows:

• 20 percent for taxpayers that fall into the newly created 39.6 percent tax bracket (unless the property itself is subject to a special rate)
• 15 percent, for taxpayers in the 25 percent, 28 percent, 33 percent and 35 percent tax brackets (unless the property itself is subject to a special tax rate)
• Zero percent for taxpayers in the 10 percent or 15 percent tax brackets
• 28 percent for collectible gain
• 25 percent for unrecaptured gain from the sale of certain depreciable realty (Section 1250 property)

Special rates for specific property. As noted above, the long-term capital gains rate on business or investment real estate (called "section 1250 property" on the tax forms) is 25 percent up to the amount of depreciation on the property while you owned it. However, there are no losses counted in the 25 percent rate group and any loss from this group must be taken into account in computing net gain or loss in the 15 percent rate group. Also, the long-term capital gains rate on collectibles such as art, rugs, jewelry, precious metals or gemstones, stamps or coins, fine wines, or antiques is 28 percent.

Capital gains are not subject to the self-employment tax. However, if a major activity of your business is buying or selling property that would otherwise be capital gains property in the hands of the average taxpayer -- for example, you're a dealer in coins or stamps, or you're a real estate developer -- you will have to treat your gains on sales as ordinary business income, reported on Schedule C rather than Schedule D. In that case, you would be subject to self-employment tax on these gains. The rates for self-employment tax in 2014 are 15.3 percent on up to $117,000, 2.9 percent thereafter, plus a 0.9 percent additional Medicare tax on self employment income over $200,000 ($250,000 for married filing jointly).

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