A Postulate on QE and the increase in the Capital Gains Tax

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Due to new fiscal cliff legislation, capital gains & dividend tax rates are increasing from 15% to 20% for singles earning over $400,000 and couples earnings over $450,000. Additional changes include:

-Individuals making in the $36,250 to $400,000 range will see their capital gains continue to be taxed at a 15% tax rate. Meanwhile, earners in the lowest two income tax brackets will pay 0% on investment income.

-There will also be an additional 3.8% investment income tax applied to singles earning over $200k and couples earning over $250k. The purpose of this new tax is to help fund Medicare.

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Short-term gains (gains on assets owned for less than one year plus one day) are taxed at your ordinary income tax rates. Long-term gains (gains on assets owned for at least one year plus one day) are taxed depending on your overall income tax bracket.

If your overall income falls in:

-the 10% or 15% marginal income tax brackets, then your long-term capital gains tax rate is 0%.

- the 25%, 28%, 33%, or 35% marginal income tax brackets, your long-term capital gains tax rate is 15%.

-the 39.6% marginal income tax bracket, your long-term capital gains tax rate is 20%.

In addition, the capital gains of high-income earners are subject to a net investment income tax of 3.8%, above and beyond that capital gains tax rate. Those rates kick in at $125,000 if you're married filing separately, $200,000 if you file single or as a head of household, or at $250,000 if you're married filing jointly or a qualifying widow(er) with a dependent child.

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