Philadelphia Capital Gains Tax

Philadelphia Capital Gains Tax

Capital gains tax is a crucial aspect of the tax code that affects investors and individuals who profit from the sale of certain assets. In Philadelphia, Pennsylvania, like many other parts of the United States, capital gains tax plays a significant role in shaping the investment landscape.

Federal Capital Gains Tax

When selling certain assets in Philadelphia, you must pay federal capital gains tax. The Internal Revenue Service (IRS) divides capital gains into two categories: short-term and long-term capital gains. If you own the assets for less than a year, it is a short-term capital gain and if you own the asset for more than a year, it is a long-term capital gain. Short-term capital gains are taxed at the individuals ordinary tax rates which can range from 10% to 37% depending on the taxpayer’s income bracket. Long-term capital gains are generally taxed at a lower rate than ordinary tax rates and are 0%, 15%, or 20%, depending on the taxpayer’s income level. 

In calculating capital gains, the basis is the original cost of the asset. It includes the purchase price and any associated acquisition costs, such as brokerage fees.  The basis is then subtracted from the sale price of the asset sold. If the sale price is higher than the basis, a capital gain is realized. If the sale price is lower, it results in a capital loss. The U.S. Tax Code offers certain exemptions and deductions that can reduce the taxable amount of capital gains. For example, certain types of assets, such as personal residences, may be eligible for a partial or fill exemption from capital gains tax, subject to certain conditions and restrictions, 

A skilled tax lawyer can help devise effective tax strategies to minimize the tax burden on capital gains. They can advise on the optimal timing of asset sales, potential tax credits, deductions, and exemptions available, and the structing of investments to maximize tax efficiency. 


Philadelphia Capital Gains


The Pennsylvania Department of Revenue does not provide any provisions for capital gains nor does it define long-term capital gains or short-term capital gains. As such, assets sold, exchanged or disposed of in Philadelphia are taxed according to the Pennsylvania Personal Income Tax system, meaning they are taxed as personal income. The Pennsylvania personal income rate is a flat 3.07%. Assets sold, exchanged or disposed of are subject to that rate. Therefore, any capital gain (sale price minus basis) will be taxed at 3.07%.


How a Tax Lawyer Can Help with Capital Gains Tax


As previously mentioned, a tax lawyer can assist with tax planning and strategies to minimize the tax burden from capital gains tax.  A tax lawyer can also assist with assessing tax implications, especially when dealing with the sale of a significant asset. They can calculate the capital gains tax on the transaction, taking into account the holding period, cost basis, and applicable tax rates. This ensures clients are fully aware of their potential liabilities and can make informed decisions about their investments.

Tax lawyers with expertise can help identify and apply relevant exemptions and deductions provided by the tax code, such as those applicable to the sale of a primary residence or certain qualified small business stock. They can also advise on the eligibility for deductions such as offsetting capital gains with capital losses.

Additionally, if a taxpayer faces an IRS audit or dispute related to capital gains tax, a lawyer can guide clients through the audit process, ensuring compliance with the IRS’s requests and protecting their rights during interactions with tax authorities. In cases of disputes, the lawyer can negotiate with the IRS on the taxpayer’s behalf, seeking resolution and favorable outcomes or even representing the taxpayer in court if necessary.

Seeking guidance from a knowledgeable tax lawyer can make a world of difference in managing tax liabilities, maximizing profits, and achieving financial goals. If you are facing a tax audit from the IRS or state authorities or are just looking for tax advice in general, the team at Premier Legal Services, PLLC are here to help you navigate the complexities of tax law.  Contact them at (267) 245-0649 or for a consultation.