Capital Gains

[Jak29672]

I am really confused on to handle taxes on capital gains and distribution. Is it considered ordinary income?

As an example, married filing joint - Income of $90,000.  Standard deductions $27,000. Capital gains & distributions of $50,000.  

Are both the $90k and $50k add together or do they have a sperate tax rate?

Thank you.

[MarilynG1]

Capital Gains do have a separate tax rate than Ordinary Income. 

Short-term and Long-Term Capital Gains are also taxed differently, depending on your other income. 

These are reported on Schedule D in your return.

Click this link for detailed info on Capital Gains. 

[Jak29672]

I read the article you referenced and am still not clear.  Tax on capital gains fall into of 0$-15%-20%.  Of the $50k in my example, $35k is considered long term capital gains and $15k is considered long term capital gains distribution on holdings.  Which tax rate does my capital gains fall into.  Is it the whole $50k or only the $35k?  If my adjusted taxable income the total of ordinary income ($90k) plus capital gains ($50k) minus standard deduction ($27K)? Or is my taxable income the $90k minus $27K? 

Thank you.

[JulieS]

Qualified dividends, long term gains and capital gains distributions are all taxed at a special tax rate.

Here is an example that I hope will answer your questions.

Total income                     $140,000

Standard deduction            $27,000

Taxable Income                 $113,000     =      22% tax bracket

Long term gains                  $35,000

Capital Gains Distributions  $15,000

Total at LTG                         $50,000  =      15% Long term gains rate

Total tax approximately $24,077

 [Edited 02/21/20 | 11:30am PST]

[Jak29672]

Thank you.

Can you give the math calculations for the estimate tax of $13,100? How did you arrive at that number?

Thanks again.

[JulieS]

I used the tax estimator tool on our website because it can take about 20 minutes to figure it out manually. I just did it again and I got a different figure. I verified this manually too:

($113,000 x .22 = $16,577) PLUS ($50,000 x .15  = $7,5000)  = $24,077

[Jak29672]

Thank you but I am even more confused now.  

So capital gains are included in total income and taxed at 22% and then taxed again at 15%.

I assumed taxable income exclude capital gains, is that incorrect?I assumed the married filing join net taxable income of $63k ($90-27k) would be taxed at 22% and $50k would be taxed at 15%.

[fanfare · Accepted solution]

The tax is determined on the Qualified Dividends and Capital Gains Tax worksheet.

It is complicated, and if you study it, it may make your head spin.

It's not worth worrying over, since there's nothing you can do about it.

TurboTax calculates your tax and that's what your paying for.

[RDK2]

I have the same question. You hit the nail on the head precisely. It does NOT make any sense.

If long term capital gains tax rate is 15%, then why is the long term capital gain amount ADDED to ordinary/earned income and taxed at ORDINARY INCOME TAX RATES?

[Jak29672]

Thank you fanfare - right answer.  Took me a while but now I understand it.

[JamesG1]

The Schedule D Tax Worksheet is in this IRS publication on pages D-16 and D-17.

It's purpose is to segregate capital gains and tax them at their appropriate rate. 

Then the remainder of your taxable income is taxed at your ordinary income tax rate.  

It is quite complicated to follow but it can be done.  Look for it among the various tax forms in your tax return.

[Cbradshaw17]

I'm 70 years old, I sold my home in August last year and moved out of state, from Arizona to California. Do I have to show the sales proceeds? 

[LeonardS]

You may have to show the sales proceeds on your tax return.

If you received Form 1099-S, Proceeds From Real Estate Transactions, you must report the sale of the home even if the gain from the sale is excludable.

If you did not receive Form 1099-S and your capital gains exceed the exclusion amount, $250,000 single filer or $500,000 joint return you will need to report the sale.

You will also have to report any gain if the home was not your primary residence for at least 2 out of the past 5 years.