US Tax on Capital Gains
1. The US taxes capital gains from the sale of assets as ordinary income. However, a maximum tax of 15% to 20% applies for purposes of regular and AMT income taxes on individuals (including trusts) with respect to ‘net capital gain’ - defined as the excess of net long term gains reduced by net short term losses. Long term gains or losses are those from assets held more than one year. The reduced maximum 15%/20% rate also applies to qualified US dividends.
2. The 20% maximum rate applies to tax payers whose total income is subject to the top rate ($751,600) (MFJ) and the 15% maximum rate applies to those in the $96,700 to $751,600 brackets(MFJ), plus an additional 3.8% Medicare tax applies to tax payers with adjustable gross income in excess of $250,000 with respect to the lesser of the excess or all passive income.
3. Note that a non grantor (non income tax transparent) trust is taxed at the maximum rate of 37% at $15,650 of undistributed taxable income and hence should distribute all of its income other than net capital gain and qualified US dividends, which are subject to a maximum tax of 18.8% or 23.8% whether taxed to the trust or beneficiaries (as distributees).
4. With the exception of US real estate and US real property holding companies taxable to foreign sellers under FIRPTA, liability to capital gains tax is largely confined to US residents. Thus, a NRA’s sale of US stocks, bonds and funds is not subject to US income tax.
5. Donative transfers are generally not subject to capital gains tax (‘CGT’) as a rollover basis rule applies, except with respect to property received by inheritance. No loss is realized on related party transfers.
2. The 20% maximum rate applies to tax payers whose total income is subject to the top rate ($751,600) (MFJ) and the 15% maximum rate applies to those in the $96,700 to $751,600 brackets(MFJ), plus an additional 3.8% Medicare tax applies to tax payers with adjustable gross income in excess of $250,000 with respect to the lesser of the excess or all passive income.
3. Note that a non grantor (non income tax transparent) trust is taxed at the maximum rate of 37% at $15,650 of undistributed taxable income and hence should distribute all of its income other than net capital gain and qualified US dividends, which are subject to a maximum tax of 18.8% or 23.8% whether taxed to the trust or beneficiaries (as distributees).
4. With the exception of US real estate and US real property holding companies taxable to foreign sellers under FIRPTA, liability to capital gains tax is largely confined to US residents. Thus, a NRA’s sale of US stocks, bonds and funds is not subject to US income tax.
5. Donative transfers are generally not subject to capital gains tax (‘CGT’) as a rollover basis rule applies, except with respect to property received by inheritance. No loss is realized on related party transfers.