Q&A of the Week December 7, 2022

Question

When do you have to pay Capital Gains Tax (CGT)?

Answer

If you make a profit by selling an investment that you have held on to for more than 1 year, you have to report the amount of the profit on your tax return for the year the profit was made.

For example, if you sold stocks in 2022 and made $5,000, you have to report the $5,000 on a Schedule D form on your 2022 tax return.

Depending on your taxable income, the CGT rate is either 0%, 15%, or 20%, and high earners pay the higher rates. Income levels are adjusted annually.

If you make a profit by selling an investment that you have had for less than one year, this is considered a short-term gain. Short-term gains are taxed as regular income, which is generally greater than the CGT.