Here's my issue. I'm making an investment that I will hold into 2019, thereby taking a long-term capital gain. I know I will pay a maximum tax of 20% on that income.
Where I'm hazy is what, if any, further impact does the capital gain have? Is it counted against my total income to push me into a higher bracket?
Say the long-term capital gain is $100,000.
Then, my wife and I earn $120,000 in salaries and for the sake of simplicity, say that our only deduction is the $24,000 standard deduction. That's a net of $96,000.
1. So, we pay 15% for LTCG tax = $15,000
2. Do we then pay 22% on the $96,000 net from our jobs, or is the capital gain somehow factored back in to drive us into the next bracket?
Please don't tell me to load everything into the software. This is speculative and I just need a direction.
From 2018, long-term capital Gains (LTCG) are taxed at 0%, 15% or 20% depending on your tax brackets.
For the purpose of determining your LTCG tax rate, LTCG are added to your ordinary income.
Your tax bracket for your ordinary income depends only on your ordinary income. Your LTCG will not push you to a higher bracket.
In your example above, if you are married filing jointly, at $96,000 of taxable ordinary income, your tax bracket will be 22%.
If you had $100,000 of LTCG, it will bring your total taxable income to $196,000 to determine your LTCG tax rate which will be 15%. But your ordinary income tax bracket will still be 22%, and not pushed up to 24%.
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So I add the LTCG to ordinary income to determine the LTCG tax rate? Don't get that, I thought these were two separate issues.
I add my $96,000 ordinary income to the LTCG of $100,000, totaling $196,000, as you indicate. This total is then taxed at 15%?
If so, what gets taxed at 22%?
If I'm adding my ordinary income to the LTCG and paying 15% on the new total of $196K, would I still have to pay 22% on the ordinary income?
That looks like double taxation to me.
Please show me a numerical breakdown of what gets taxed and at which rates.
In your example, your $96,000 of ordinary income is taxed the same amount as it would be if you had no LTCG. Add to that 15% tax on the $100,000 of LTGC. (This assumes that $96,000 is your taxable income without the LTCG. $96,000 is your AGI, you have sufficient deductions to bring you under the LTCG "maximum zero rate amount" of $77,200 (for 2018, adjusted for inflation in later years) and you are married filing jointly, some of your LTCG will be taxed at 0%. If are not filing jointly, the maximum zero rate amount is $38,600 and your ordinary taxable income is likely to be above that, pushing all of the LTCG in to the 15% LTCG bracket.)
<a rel="nofollow" target="_blank" href="https://www.irs.gov/taxtopics/tc701">https://www.irs.gov/taxtopics/tc701</a>
The calculation I did assumes that your AGI is $65,000 before adding the $100,000 capital gain. Enter everything into TurboTax and it will do the calculations.