Long term capital gains payment tiers

[Starskii]

When paying taxes on LTCG do you pay tax % amounts for each tier level you cross into or does all of the LTCG just fall into one % bracket?

My Situation :

Standard  Income - $7,375.  

LTCG - 136,333.  

Total income - $143,708

Standard Deduction - $24,400

Income After Deduction - $119,308

Standard income falls into the 10% tax bracket. 

Combined after standard deduction falls into the 15% LTCG tax bracket.

The LTCG  0% bracket is $0 - 78,750

 15% bracket is $78,751 - $488,850

So do I take the 119,308  and pay only 15% on only $40,558 because that’s all that crossed over into the 15% bracket?  Or is there not cross over and I ha e to pay the 15% on the whole 119,308?  Based on my standard income I figured this would be an easy return to do next April, but maybe I’m wrong.?

[Critter]

We have a convoluted graduated income tax system ... so if you want the answer to your question you need to complete the QDCGT worksheet to see how it all works :   https://apps.irs.gov/app/vita/content/globalmedia/capital_gain_tax_worksheet_1040i.pdf

[Starskii]

Im just looking for an easy answer from someone. The question is simple enough for an experienced person to be able to answer quickly. Im not filling out worksheets.

[tagteam · Accepted solution]

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@Starskii wrote:

Im just looking for an easy answer from someone. The question is simple enough for an experienced person to be able to answer quickly. Im not filling out worksheets.

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In your scenario, you would be taxed at the 15% rate on $40,558.

[Starskii]

Ok so there is crossover between brackets you are certain? I’m asking because I just was told the opposite on another tax website. I hope you are correct because that would be great 👍 

[tagteam]

@Starskii These are thresholds, not really crossovers. For example, had your income been $719,308 rather than $119,308, you would have been taxed at the 20% rate on all of your capital gain.

[Starskii]

If that’s the case then why am i not being charged 15% on all of my income now? Why am I able to split it between the 0% bracket and the 15% bracket?

[tagteam]

Because your income is over the $78,750 threshold for 0% so you are taxed at the 15% cap gain rate above that threshold.

[Starskii]

Yes but if my income was more then it would just fall into all three brackets (0%, 15%, and 20%) instead of just two like it does now. So if it can be split between two now then it would just be split between 3 brackets not fall into just the 20%. So I’m not following what you are saying...it sounds contradictory to your other answers.

[tagteam]

It is not split across 0%, 15%, and 20% if your income exceeds that threshold. Rather, the entire cap gain is  then taxed at 20%.

[Starskii]

Oh ok I see 😁 they make it so complicated lol. Thank you for taking time to explain this to me. So that’s great I will get to leave the bigger part of my gains in the 0% hrs awesome!

[tagteam]

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@Starskii wrote:

So that’s great I will get to leave the bigger part of my gains in the 0% hrs awesome!

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😀👍

[mesquitebean]

You wrote:  "Based on my standard income I figured this would be an easy return to do next April, but maybe I’m wrong.?"

It should be easy.  TurboTax does all the heavy work.  It handles all the tax calculations and worksheets for you after you merely input the numbers from your 1099's.

[kirbyhughes]

Great info but TurboTax does not allow me to make entries.

[mesquitebean]

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@kirbyhughes wrote:

Great info but TurboTax does not allow me to make entries.

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With no explanation of your issue and what kind of entries, you'd probably need to explain "does not allow"  in detail for anyone to be able to reply.  Also what product are you using?  If Online TurboTax, Premier or higher is necessary for Schedule D, Form 8949, etc. for capital gains/losses.