Are There Any Tax Changes to Capital Gains in 2022?
In 2021, there were many new investors who may have profited from their initial investment. Now, it has triggered a taxable event known as capital gains tax. What are the changes in 2022?
Feb. 25 2022, Published 12:15 p.m. ET
If 2021 taught us anything, it was that cryptocurrency, blockchain, and Web 3.0 weren't bad investments to hedge. Known as the year of the NFTs, 2021 also introduced many new investors to the sector who may have profited from their initial investment. Now, it has triggered a taxable event. Are there capital gains tax changes in 2022?
Let's discuss the capital gains tax changes that you should consider when filing in 2022.
What is capital gains tax?
Capital gains tax is triggered when someone makes a higher ROI (return on investment) than their initial capital investment — essentially, they have made a profit on their asset. Various assets can yield capital gains tax, such as real estate, stocks, cryptocurrency, and other forms of businesses.
The tax on a capital gain depends on the person's salary and how long the assets get held. Capital gains tax could be on short-term or long-term capital gains.
What are short-term and long-term capital gains?
Short-term capital gains are any profit made on investments for assets held less than a year. Long-term capital gains are profits made on investments for assets held for a year or more.
How to calculate short and long-term capital gains tax in 2022.
Short-term capital tax gains are subject to the same tax brackets for ordinary incomes taxes in 2022. Ordinary income brackets begin at 10 percent and increase incrementally to 37 percent. Because of this, long-term capital gains tax rates are much lower than ordinary income rates. Below you will find the adjusted ordinary income tax brackets for 2022.
| Tax Rate | Single | Head of Household | Married Filing Jointly / Widow | Married Filing Separately |
|---|---|---|---|---|
| 10% | $0 - $10,275 | $0 - $14,650 | $0 - $20,550 | $0 - $10,275 |
| 12% | $10,276 - $41,775 | $14,651 - $55,900 | $20, 551 - $83,550 | $10,276 - $41,775 |
| 22% | $41,775 - $89, 075 | $55,901 - $89,050 | $83,551- $178,150 | $41,776 - $89,075 |
| 24% | $89,076 - $170,050 | $89,051- $170,050 | $178,151- $340,100 | $89,076 - $170,050 |
| 32% | $170,0501 - $215,950 | $170,051 - $215,950 | $340,101- $431,900 | $170,051 - $215,950 |
| 35% | $215,951 - $539,900 | $215,951 - $539,900 | $431,901 - $647,850 | $215,951 - $323,925 |
| 37% | $539,901 or more | $539,901 or more | $647,851 or more | $323,926 or more |
If a long-term capital gain tax is triggered, you will have to see which tax bracket you fall under based on your salary. Unlike short-term capital gains, tax brackets for long-term capital gains are 0 percent, 15 percent, and 20 percent. According to the IRS, the salary brackets for 2022 have increased just slightly.
| Filing Status | 0% Rate | 15% Rate | 20% Rate |
|---|---|---|---|
| Single | Up to $41,675 | $41,676 - $459,750 | Over $459,750 |
| Married filed jointly | Up to $83,350 | $83,351 - $517,200 | Over $517,200 |
| Married filed separately | Up to $41,675 | $41,676 - $258,600 | Over $258,600 |
| Head of Household | Up to $55,800 | $55,801 - $488, 500 | Over $488,500 |
For example, if someone files independently and earns a long-term capital gains tax but make less than $41,675, they don't have to pay taxes on their profit. As soon as a single tax filer makes $1 more than $41, 675, they're subject to 15 percent tax. If they are married and filing jointly, they would have to make less than $83,350.
Outside of capital gains tax, taxpayers should also be mindful of NIIT (net investment income tax).
What is net investment income tax?
Usually, NIIT applies to high-income taxpayers for filers making more than $200,000 or married couples generating over $250,000. NIIT is a 3.8 percent surtax on wither capital gains, dividends, estates, and trusts. This increase to 3.8 percent went into effect on January 1, 2022.