If a taxpayer has a net capital gain, the taxpayer’s long-term capital gains and losses must be separated into three maximum tax rate groups: (1) the 28 percent group; (2) the 25 percent group; and (3) the 15 percent group.
The 28 percent group consists of capital gains and losses from collectibles (including works of art, rugs, antiques, metals, gems, stamps, coins, and alcoholic beverages) held for more than one year, but only to the extent such gain is taken into account in computing gross income and such loss is taken into account in computing taxable income. The 28 percent group also includes an amount equal to the gain excluded under the rules relating to the sale of small business stock.
The 25 percent group consists of unrecaptured Code Sec. 1250 gain - there are no losses in this group. Unrecaptured Code Sec. 1250 gain is long-term capital gain, not otherwise recaptured as ordinary income, attributable to prior depreciation of real property.
The 15 percent group (5 percent in the case of gain that would otherwise be taxed at a rate of either 15 percent or 10 percent) consists of long-term capital gains and losses that are from sales or exchanges of property on or after May 6, 2003, and that are not in the 28 percent or 25 percent group. For purposes of applying these rates in tax years beginning after December 31, 2002, net capital gain is increased by the amount of the taxpayer’s qualified dividend income.
For 2012, the capital gains of taxpayers whose regular taxable income is taxed at a tax rate below 25 percent (i.e., taxpayers in the 10 and 15 percent tax brackets) are taxed at a zero percent tax rate instead of the 15 percent tax rate that applies to the third group. Beginning on or after January 1, 2013, the reduced capital gains rates of 15 percent and zero percent (for taxpayers in the 10 and 15 percent tax brackets) have been made permanent. In addition, beginning on or after January 1, 2013, a capital gains rate of 20 percent applies to adjusted net capital gains of individuals if the gain would otherwise be subject to the 39.6-percent ordinary income tax.