Beware! Short-term capital gain tax rates are taxed as ordinary income.
There's a better way. In this episode, I'm going to address the question,
"How much is short-term capital gains taxed?" You're going to learn how you can
avoid it, what the tax rates are and how sometimes
you can get taxed to death when you don't need to by
simply holding on to a property a little bit longer.
So, my name is Doug Andrew. I've been a tax strategist for more than 46 years.
And I've helped many many thousands of clients avoid unnecessary tax.
So, a lot of times, people will buy an asset stocks or maybe a piece of real
estate and they'll flip them. And so when you
buy something, you fix it up, you flip it, you have to pay tax on the profit you
made. Well, under current tax law as a of the
recording of this video, it's 2020 and under the tax laws a
short-term, capital gain is taxed as ordinary income.
That is normally how short-term capital gains
are paid. But sometimes, the length of time to
qualify for short-term is different. Right now anything that you
sell that you've held on to less than one
year is a short-term capital gain. Anything you hold on to a year or
longer is taxed at a long-term capital gain rate
which is less. Now, in the future, because depending upon who's in power
between the democrat party or the republican
party with congress and the executive branch, you'll see
short-term and long-term capital gain rates being
the same sometimes. And sometimes the long-term capital gains will be
dramatically less. As of the recording of this episode. So,
for example, if you hold on to an asset that has been highly appreciated
for longer than a year, the current capital gain tax rate is either
zero or it's 15% or 20% at a federal level. Plus 41 out of 50
states has a state income tax rate if it's a long-term capital gain. You
have to pay tax on whatever your basis is in the
stocks or maybe if it's a piece of real estate.
The basis is what you paid for it less any
depreciation you've taken on the building. You have
the value of the land that stays constant.
But most people depreciate down the building.
And then when you ultimately sell, if you don't buy a like property and do a 10-31
exchange rolling over to a new one, then you have to pay a capital gain on
that entire amount. Which i think is sort of unfair in many ways because
you're simply paying tax on inflation, the cost of limit increase.
But tax revenuers love to tax capital gains because you're getting a lump sum
of money and they'd like to get a piece of that
whenever you get a lump sum. Well, a long-term capital gain is defined
right now as anything held longer than a year. But in the past,
sometimes you've had to hold on to it for 18 months.
Maybe 24 months before you got the break in the tax rate.
Short-term capital gain rates are taxed as ordinary income.
So, as of the recording of this episode, a a married couple
filing a joint tax return making over 400,000 a year.
You pay 37% in tax under the trump tax cuts. But it's going
to go back up probably to 39.6%. And in the past that's been as high as
70%. Before president Reagan lowered taxes
back in 1986. The short-term capital gain rate is the exact same as if you earned
the income. Well, many times a government revenuers to fund medicare for
all or health care issues like Obama did with Obamacare,
he taxed an additional 3.8% on long-term capital gains to fund his
Obamacare. So, a married couple filing a joint tax
return making more than $400,000,
they may pay tax of 20% on the gain plus another 3.8.
That's what happened to me. I sold a commercial building. I sold a condo
and I had to pay 23.8% in long-term capital gain rates,
plus another 5% in state. A grand total of 28.8%.
Well, a short-term capital gain rate would have been 37%
plus the surcharge for the Obamacare and the state rate.
And so, I'm glad that I had a lower rate. Well, many times, especially the democrat
party, they're more tax revenuers. They like to
raise taxes to fund their different government programs. They like to raise
it up to the ordinary income tax rate which Joe Biden for
example says he would take that back up immediately to
39.6% if he were to be elected at the
recording of this video, the election is going on. And then he
wants to do away with the step up in basis on long-term
capital gains. But if he passes what he wants to, you have to pay tax
at your ordinary income tax, period. On the entire gain even if you inherit
it. So, when we answer the question, "What are
short-term capital gain tax rates?", it's pretty much whatever you pay in
income tax on earned income. And I think it's unfair but
that's what they do. They love to tax people
when they are receiving a lump sum whether you're inheriting money
because your parents pass away or you're selling a piece of property.
If you haven't noticed, the government likes to be around there with their hand
out. And so, you can avoid a short-term
capital gain tax rate if the long-term capital gain rate is lower
by holding on to the property at least one year.
They may change that in the future back to 18 months, I don't know.
But you want to study and make sure you know
what the parameters are, what are the thresholds and
don't pay any more tax on the gain than you
absolutely have to. So, the issues that I want you to consider --Can you wait
another month or 2 turn it from a short-term capital gain
to a long-term capital gain? If there is a difference a lower rate.
Which many times if republicans are in power.
It can be half the tax. Or you can do a 1031 exchange on long-term capital gains
over to a like property and defer. And I'm not saying that's always the
best idea because sometimes you're just inheriting a new headache
with new properties that you have to still fix the toilets, evict the tenants,
and take out the trash and maybe you don't want to do that anymore.
But you can also analyze when is it wise to go ahead and bite the bullet and
pay the capital gain tax and take the net
and put that money into something that's going to be tax-free from now
on. So, explore my channel. I have several educational YouTube videos that
explain some of the alternatives. My favorite is called the Laser Fund,
how to accumulate, access and transfer your money totally tax free with IUL.
It's where i have earned between 8-10 percent average tax free
for over 46 years. Watch this episode and maybe you'll get some insights into
opportunities you didn't know existed before.
There's opportunities to get free copies of my books. You just
contribute $5.95 towards the shipping and handling. I'll pay for the book
and i will send it out to you absolutely free.