Capital Gains Tax Blog Series 5: Updates for 2023

November 29, 2022

The thresholds for each tax rate are adjusted annually for inflation. The IRS has released  the 2023 thresholds (click here for the 2023 inflation adjustments).  Given the high inflation rates of late, the thresholds will increase at a greater rate for 2023 than they have in recent years. This is good for taxpayers, since it helps prevent upward movement from a lower long-term capital gains tax rate to a higher one from one year to the next.


To take advantage of the varied rates, you might want to sell capital assets over a span of years to be taxed at 0% or 15% over several years, instead of selling all your assets at once and having them all taxed at the 20% rate. You can also wait to sell capital assets in years in which you qualify for the 0% rate – e.g., after retirement, after a layoff, or in a year when you’re between jobs or have losses on other capital assets. These strategies are known as “tax gain harvesting.”

Special capital gains tax rates apply when certain assets are sold. For example, any gain from the sale of qualified small business stock that isn’t excluded is subject to a special capital gains tax rate of 28%. A special 25% rate also applies to something called unrecaptured Section 1250 gain. This is generally the amount of depreciation previously taken on real property, but it can’t exceed the amount of gain you realize from the sale of the property. In addition, gains from the sale of collectibles are taxed at 28%. This includes gains from the sale of art, antiques, stamps, coins, gold or other precious metals, gems, historic objects, or another similar items.

Note, however, that the special rates are maximum rates for people with higher incomes. If your ordinary tax rate is lower than the special rate (i.e., either 10%, 12%, 22% or 24%), your ordinary tax rate may apply to gain on qualified small business stock, Section 1250 gain, or collectibles.

Caution: In addition to the capital gains tax, there is also a surtax that applies to “net investment income.” (NII includes, among other things, taxable interest, dividends, gains, passive rents, annuities, and royalties.) If your income is above a certain threshold – $200,000 if single, $250,000 if filing jointly, or $125,000 if married filing a separate return – you generally must pay the additional 3.8% surtax on your capital gains. However, this surtax doesn’t apply to capital gains resulting from the sale of business assets if you’re an active participant or real estate professional.

Source: Kiplinger