Capital Gains

[Jimsyled01]

My ss and retirement is less than $40,000. I sold my rental for a $160,000 in capital gains. Turbo Tax calculated my tax at $23,000, Shouldn't it be 0% on the capital gains because of my income or is the capital gains considered taxable income when looking at the IRS charts? 

[Bsch4477 · Accepted solution]

Yes, the capital gains is considered income and contributes to your AGI. It also makes more of your social security taxable. 

[Jimsyled01]

Ouch - Thanks for the answer. I could go into denial. 

[Mike9241]

it won't be zero because you took depreciation on the rental and that part of the gain is taxble

[medicigregnick]

ask a CPA. I heard capital gains does not affect your income. First 513,000 gain is taxed at 15%, so 23000 sounds correct.

[leeloo]

85% of your social security is taxable. Your recapture of depreciation is income and affects the social security.

[Hal_Al]

There are four things going on with your tax return.

1. The 0% capital gains (CG) rate only applies to the portion of you capital gains, included in taxable income below the 22% tax bracket (~$40K). At best that would only be ~$28,000 taxed at 0%, Since you have other income, it's going to be much less than that,

2. The CG income increases your AGI making more of your Social security taxable.

3. The increase in total taxable income, making more of the SS taxable, also decreases the amount of CG taxed at 0%.

4. The depreciation recapture is taxed as ordinary income, not at long term CG rates.