Why is turbotax assessing a long-term capital gains tax?

[mjohn1251]

I understood that the long-term capital gains tax rate for 2020 is 0% if our taxable income is <$80,000 (married, filing jointly). Our taxable income is well below that (our major income was $55,000 from Social Security, which in any case is not taxable, right?), yet turbotax assesses 15% on the capital gains. Anybody know what's going on?

Thanks!

[SusanY1]

If the capital gain, when added to your other income, brings you over the income limit of $80,000 then you will be subject to the capital gains tax of 15% on your long term capital gains (unless they exceed $496,050 when the tax is higher).  This added income can also cause a portion (no more than 85%) of your social security income to be subject to your ordinary income tax rates as well. 

So if, for example, your social security income (jointly) is $55,000 and you have a $40,000 capital gain, you will pay tax on the capital gain and a portion of your social security income also becomes subject to tax (in this example, roughly half becomes taxable). 

[Wirefence]

Thanks for your help. Which income is applicable to the $80,000? Total income? AGI? Taxable income?

Thanks,

W

[Rick19744]

Taxable income.

[Hal_Al]

Q. Which income is applicable to the $80,000? Total income? AGI? Taxable income?

A. It depends on what it is applicable to.

For calculating the capital gains rate, the answer is taxable income. Your AGI minus your standard or itemized deductions equals your taxable income.

But, for calculating how much of your social security is taxable, it's your total that's applicable.  It may best be explained with an example.  Your only income is social security of $40K total for both spouses.  None of it is taxable  and you are not even required to file a tax return.   But, this year you have a $65K capital gain.  So, your total income is now $105,000 and that's enough to make 85% of your SS taxable. So now your AGI is 0.85(40,000) + 65,000 = 99,000.  Your taxable income is 99,000 - 25,100 (Std, deduct) = 73,900.  That's less than $80K, so none of your capital gain gets taxed, but you still have a tax bill because you SS is now partially taxed.