8608 / What new rules have been developed in recent years to change the tax rates applicable to long-term capital gain?

Congress has taken steps in recent years to reduce the rates applicable to long-term capital gains. As such, long-term capital gains recognized on or after May 6, 2003 are subject to lower tax rates today than has historically been the case. Under the 2017 tax reform legislation, those lower rates continue to apply, but the income thresholds that determine to whom those rates will apply have changed along with the changes to the individual income tax rates.Up until 2018, for taxpayers in the 25, 28, 33 and 35 percent ordinary income tax brackets, the rate on long-term capital gains was reduced from 20 percent to 15 percent in 2003 through 2012. For taxpayers in the 10 and 15 percent brackets, the rate on long-term capital gains was reduced from 10 percent to 5 percent in 2003 through 2007, and then to 0 percent in 2008 through 2012. As discussed below, these lower capital gain rates have been made permanent for tax years beginning after 2012.¹

The American Taxpayer Relief Act of 2012 (“ATRA”) extended the 0 percent and 15 percent capital gain rates for most taxpayers and increased the rates for taxpayers in the highest income tax bracket. ATRA permanently increased the rate on long-term capital gains to 20 percent for taxpayers with taxable income that placed them in the highest 39.6 percent income tax rate bracket (for 2012017).² The applicable threshold amounts were adjusted annually for inflation.³ For taxpayers in the 10 or 15 percent income tax brackets, the rate on long-term capital gains was set at 0 percent for 2012017. Taxpayers in the 25, 28, 33 and 35 percent tax brackets were taxed at 15 percent on long-term capital gains for 2012017.⁴

2024 Long-Term Capital Gains Rates

The 0 percent capital gains rate applies to joint filers who earn less than $94,050 (half of that amount for married taxpayers filing separately), heads of households who earn less than $63,000, single filers who earn less than $47,025, and trust and estates with less than $3,150 in income.