If I sell a rental property will the capital gains affect my adjusted gross income for federal tax purpose? Also, how would the capital gains be taxed?

[Coleen3 · Accepted solution]

Yes. Capital gains are found on Line 13, 1040 (2019 Line 6) and are included in your AGI. Capital Gains may be long term or short term (one year or less). Short term capital gains are taxed as ordinary income. Depreciation recaptured is also ordinary income which is taxed at your tax rate.

Capital Gain Tax Rates

If you have a net capital gain, a lower tax rate may apply to the gain than the tax rate that applies to your ordinary income. The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year. The term "net long-term capital gain" means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years. The tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you're in the 10% or 15% ordinary income tax brackets. However, a 20% tax rate on net capital gain applies to the extent that a taxpayer's taxable income exceeds the thresholds set for the 39.6% ordinary tax rate ($418,400 for single; $470,700 for married filing jointly or qualifying widow(er); $444,550 for head of household, and $235,350 for married filing separately)

2019 amounts 

0%	$0-$39,375	$0-$78,750	$0-$52,750	$0-$39,375
15%	$39,376-$434,550	$78,751-$488,850	$0-$461,700	$39,376-$244,425
20%	Over $434,550	Over $488,850	Over $461,700	Over $244,425

[goodgroovin]

Thank you!

[Coleen3]

My pleasure

[Mrbil]

Is the Capital Gain added to your taxable income BEFORE determining the Gain tax Rate? For example, if you had a Gain on rental property of $400,000 and your only income is SS benefits (say that is $50,000) - is the Capital Gains rate calculated based on $450,000 or based on the $50,000. Big difference in the % of the tax rate.

[TomYoung]

@Mrbil 

Your "taxable income" - which includes all your "ordinary" income, your long term capital gains minus your standard or itemized deduction - dictates the top LTCG tax rate you will pay.  

Depending on your situation, (that is, how much of your taxable income income is "ordinary" vs. how much is LTCG), you can "progress" through the LTCG rates with some of the LTCG taxed at 0%, some at 15% and then some at 20%.