Capital Gains Tax Rate on sale of home for low income household

[skohl]

My husband and I plan to sell our house this year. Let's assume that after the 500K exclusion and other adjustments to cost basis, my long term capital gains will be 100K. Various articles have said that if you are in a low income situation you won't have to pay any capital gains. So I tried to google the tax rates and have seen conflicting information. One article has a table that says if my "income" is under 77,200 my tax rate for long term capital gains is Zero. I'm not sure if this table is referring to adjusted gross income or gross income when figuring the tax bracket. Any help in understanding whether I would pay zero capital gains would be appreciated. Thanks.

[AJ · Accepted solution]

Numbers for this case should refer to the Form 1040 Line 43, "taxable income".  Internal Revenue Bulletin (IRB): 2018-10 dated March 5, 2018, defines the 2018 upper limit as $77,400 for the 12% married filing jointly tax bracket--slightly higher than the number you quote.  If you and your spouse will be in the 12% tax bracket, or lower, this year, then the tax on long-term capital gains and qualified dividends is zero.  The Form 1040 Instructions should contain a worksheet named "Qualified Dividends and Capital Gains Tax Worksheet" that will  have the process used to compute the tax for Line 44 (currently available worksheet uses 2017 limits).   TurboTax automatically completes the worksheet for you.

[Lisa995]

That 100K in gain gets added to your other income,  you probably wont be considered "low income" anymore.

[skohl]

Thank you so much for the very helpful answer - exactly what I read in the article but with great detail.

Thanks, Sandi

[skohl]

Actually since it is long term capital gains I am pretty sure it is not added to "taxable income".

[AJ]

The capital gain creeps in on Line 13 of Form 1040 and thus it contributes to total income (Line 22) and AGI (Line 37).   It eventually gets to Line 43 and is thus included in the "taxable income".  It is just that the tax rate can be zero if the bracket is low enough.  Lisa995 brings up a good point in that a $100K gain will push the return out of the "low income" category.

[AJ]

I believe that you are correct in that observation.