In the United States, with certain exceptions, individuals and corporations pay income tax on the net total of all their capital gains. Short-term capital gains are taxed at a higher rate: the ordinary income tax rate. The tax rate for individuals on "long-term capital gains", which are gains on assets that have been held for over one year before being sold, is lower than the ordinary income tax rate, and in some tax brackets there is no tax due on such gains.
The tax rate on long-term gains was reduced in 1997 via the Taxpayer Relief Act of 1997 from 28% to 20% and again in 2003, via the Jobs and Growth Tax Relief Reconciliation Act of 2003, from 20% to 15% for individuals whose highest tax bracket is 15% or more, or from 10% to 5% for individuals in the lowest two income tax brackets (whose highest tax bracket is less than 15%). (See progressive tax.) The reduced 15% tax rate on eligible dividends and capital gains, previously scheduled to expire in 2008, was extended through 2010 as a result of the Tax Increase Prevention and Reconciliation Act signed into law by President Bush on 17 May 2006, which also reduced the 5% rate to 0%.Toward the end of 2010, President Obama signed a law extending the reduced rate on eligible dividends until the end of 2012.
The law allows for individuals to defer capital gains taxes with tax planning strategies such as the structured sale (ensured installment sale), charitable trust (CRT), installment sale, private annuity trust, a 1031 exchange, or an opportunity zone. The United States, unlike almost all other countries, taxes its citizens (with some exceptions)[
on their worldwide income no matter where in the world they reside. U.S. citizens therefore find it difficult to take advantage of personal tax havens. Although there are some offshore bank accounts that advertise as tax havens, U.S. law requires reporting of income from those accounts, and willful failure to do so constitutes tax evasion.
