Taxation of long term capital gains

[kato5665]

My ordinary income (total taxable income without capital gains) is less then $36,650 (single). Everything I have read says therefore my tax rate on capital gains is zero. I have $1,000,000 of LT cap gains. When I use "Qualified divs & cap.gains Worksheet" it shows I have to pay income taxes. What is wrong with my thinking that I should not have to pay taxes on these gains?  Thanks.

[TaxGuyBill]

You had a $1,000,000 capital gain and you didn't consult a tax professional before the sale?

[Texas Roger · Accepted solution]

The LT capital gains are added to your other taxable income to determine the tax bracket you are in for determining what capital gains tax rate to use. The tax bracket would be 39.6% so your capital gains tax rate would be 20% plus you must pay 3.8% Net Investment Income Tax in addition to the 20%.

[madchemist007]

Isn't the long term capital gain taxed 0 if the person's tax bracket is below 15%?  Why does or doesn't apply to a long-term capital gain?

[kato5665]

I did not ask this question.

[Texas Roger]

If your tax bracket after adding the capital gains to your other income is below 25%, all of your capital gains are taxed at 0% in 2017.

[yukon1995]

So if I make 38,000 in a year and have 500,000 in capital gains I dont have to pay capital gains taxes?

[Texas Roger]

Your conclusion is incorrect. The capital gains are added to your other taxable income to determine what capital gains tax bracket you are in. You would have 3 different capital gains tax rates on $500,000 of long term capital gains--0%, 15% and 20%.

Here are the capital gains tax brackets for each range of taxable income including the capital gains amount:

Tax rate            Single                           Joint                   Head of household
0%                    $0 to $38,600          $0-$77,200         $0-$51,700
15%                    $38,601-$425,800 $77,201-$479,000 $51,701-$452,400
20%                    $425,801 and up         $479,001 and up $452,401 and up

There is also a Net Investment Income Tax of 3.8% that applies in incomes above certain thresholds. See this IRS pub for the threshold amounts: <a rel="nofollow" target="_blank" href="https://www.irs.gov/newsroom/questions-and-answers-on-the-net-investment-income-tax">https://www.irs...>

[yukon1995]

So what tax bracket am I in

[Texas Roger]

You are in 2 or 3 capital gains tax brackets depending on your filing status and standard or itemized deductions--0%, 15%, and 20%.  When the sum of your taxable ordinary income plus capital gains reaches the top of the 0% rate for your filing status, then the amount of capital gains above that limit and up to the top of the 15% limit are taxed a 15%. Any amount above the top of the 15% bracket is taxed at 20%.  The additional 3.8% is added on top for amounts above the non taxable limit for your filing status.

[yukon1995]

How do I add write offs like upgrades

[Texas Roger]

Upgrades of what?

[jnmunsey]

Going to add to this convo for 2018 taxes.

Ignoring deductions and the 3.8% NIIT, if my adjusted gross income is $425,800 and LTCG are also $425,800, my tax rate is 15% correct?

What if my AGI/LTCG are $425,801? Does the extra dollar make all of it taxed at 20%, or only the additional $1? Thanks.

[Texas Roger]

The rates are on taxable income and not AGI. If you are single, your AGI would be reduced by $12,000 for the standard deduction. Let's just assume your taxable income instead of AGI is $425,800 and it is all LTCG. Of the $425,800 taxable income, $38,600 of it is taxed at 0%. The balance of $387,200 is taxed at 15%. If your taxable income was $425,801 instead of $425, 800, then the next $1 of capital gains would be taxed at 20%. Only the $1 is taxed at 20%.

[yukon1995]

upgrades on my property prior to selling it?