Investment Income Taxes

The tax law did not changed the favorable rates for long-term capital gains and many dividends, and there is still a popular zero rate for these types of . For 2018, the zero rate applies to jointly filed married couples who have a taxable income of up to $77,200 ($38,600 for singles). A rate of 15 percent will then apply to joint filers with a taxable income of up to $479,000 ($425,800 for single filers), and a rate of 20 percent will apply above that. For filers with higher incomes, there is also a 3.8 percent surtax on .

Long-term gains in capital are net profits from investments held over a year. As in previous legislation, short-term capital gains on investments held for one year or less are taxed at the same rates as ordinary income. The favorable dividend rates apply to the “qualified” ones. Unqualified dividends are taxed at rates of ordinary income.

The tax overhaul did not abrogate the net income surtax of 3.8 percent. This tax applies to most married couples ‘ adjusted gross income of $250,000 and most single filers ‘ $200,000. Those thresholds for inflation are not indexed. As a result, top-ranking taxpayers usually owe 23.8 percent of their long-term gains and dividends instead of 20 percent. Some investors in the 15 percent bracket for this income owe part or all of it a 3.8 percent surtax because their adjusted gross income exceeds the $250,000 / $200,000 threshold. Filers below the threshold do not owe it. Congress also preserved most municipal bond interest tax exemptions.