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?
Example...
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.
Thanks.
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%.
Thanks. Just a little confused.
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.
Thanks.
Your LTCG is treated as the last income received when determining the tax bracket into which any particular income falls. Generally speaking, when determining your tax, the LTCG is subtracted from your taxable income, ordinary income tax is calculated on the remainder, then added to that is the tax on your LTCG calculated at LTCG rates. For 2017, the LTCG rate (0%, 15% or 20%) is determined by the tax bracket in which the LTCG would have been taxed if it had instead been ordinary income. For 2018 and later, the LTCG rates are determined by dollar thresholds (adjusted for inflation) rather than tax brackets where the income would have fallen as ordinary income, decoupling the LTCG brackets from the ordinary income tax brackets, but with similar effect.
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.)
Thanks much, dmertz, that's what I thought it was after reading about it but just wasn't sure how it would all shake out. Your answer gives that clarity.
im selling my house it is over a year and less then 2years which is long term capital gain. Total married filing 65000.00. I made profit 100k. Does this need to be added to my income which is 165k? if so looks like tax bracket for income is 12%, however I see our income is under $77,200 which is 0% tax on capital gain. Can anyone explain this please
Yes, the $100,000 adds to your income. If your AGI for 2018 without this $100,000 of LTCG is $65,000 and you use the standard deduction of $24,000, your taxable income will be $141,000. $141,000 - $77,200 = $63,800 will be taxed at 15% LT capital gains rate, $100,000 - $63,800 = $36,200 will be taxed at 0% LT capital gains rate and $141,000 - $100,000 = $41,000 will be taxed as ordinary income. TurboTax will do all of these calculations for you on either the Qualified Dividends and Capital Gain Tax Worksheet or on the Schedule D Tax Worksheet.
Ok- so either way if i see my house now or wait til 2 yrs before i sell still come out the same, right?
Wait- does that count my hubby disability income? Which includes our total income
If you wait until you've lived in the house for 2 years you'll be eligible to exclude the gain on the sale of the home:
<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.
Just found this post and I'm trying to follow the math. Why wouldn't the tax bracket of the couple be 24% instead of 22% (based on 2018/2018 tax tables)?
I suggest you work thru the cap gain worksheet ... it make make the whole process clearer ... https://www.irs.gov/pub/irs-prior/i1040gi--2018.pdf#page=40
Hi, ok so I ran these equations using the current 2019 brackets numbers, but I ran into an issue at the end. My AIG will only be $7,504 with a LTCG of $136,333, so I get a negative # for regularly taxed income. Is this correct?
My negative # of regular taxed income in the end of the equations + my AIG ends up equaling the 2019 standard deduction of 24,400. So I’m guessing the math is right, but I just will not be taxed on my regular income because t gets canceled out since my AIG was so much lower than the standard deduction correct?
Sorry, still confused over which bracket we fall into. (Married filing jointly)
Income=$29k, + Interest & Dividends = $49k; Short-term gains = $0; Long-term gains = $62k
So, I believe we are in the 22% tax bracket for the Income but for the long-term gains, are we in the 0% or 15% ?
@Starskii Correct ... since your regular income is negated by the standard deduction then the cap gains all gets cap gain treatment.
Run the worksheet mentioned in the prior post to see the actual taxes ... but the simple answer really isn't simple ... the taxes are not static ... we have a graduated tax system so it is not a flat rate on all of the gains but the cap gains will be taxes at a floating rate with a max rate of 20%.
Hello
I actually have the same issue as the person who started this thread. On my 2019 TT return (1040-SR), my LTCG was used in the calculation of my AGI which I believe you said it wouldn't be. ? This year, I have the same issue and it will push me into another tax bracket if added to my AGI not to mention taxed at the income rate. I understand the idea that LTCG are taxed at certain rates rather than aded to taxable income however, as I am looking at the 2019 return as I write this, the LTCP IS added to my AGI.
Ok ... so the LTCG is added to your income on the 1040 and will be part of the AGI and can affect things like taxable SS benefits. THEN later on the 1040 ... when it comes to computing your taxes the worksheet is used. These are separate items.
Your understanding is incorrect.
1. Your long term capital gain (LTCG) is part of your AGI calculation.
2. LTCG are taxed at certain rates, but which rate depends on your other income. LTCG are added to taxable other income .
Your regular income is first taxed at the lower rates (10 & 12%). Your LTCG are added to other income to determine your next higher tax bracket. But rather than being taxed at the higher rate (next usually 22%), they are instead taxed at the lower LTCG rate (starting at 15%).
For details, see the Qualified Dividends and Capital Gains worksheet (abbreviated "Qual Div/Cap Gn" on the forms list)