Taxes on long term capital gains

[Pran]

I recently sold some stocks that I held over an year and since they are considered as long term capital gains, I am trying to understand the taxation on it. As per the investopedia, I see that (for 2021), if the gains are under $80800, then the tax rate is 0%.  Can any one please confirm if that’s the case? Is this applicable even if earnings with my full time job wages are over 100K.? As I understand the taxation will be separate for long term gains and my other wages. 

[tagteam]

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@Pran wrote:

As per the investopedia, I see that (for 2021), if the gains are under $80800, then the tax rate is 0%.  Can any one please confirm if that’s the case?

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The  figure you quoted, and the 0% rate, is based upon your taxable income and filing ststus so you need to take any other income (e.g., wages, interest, etc.) into account.

If you read the page on the site you mentioned carefully, you will note the part about "taxable income".

[rjs · Accepted solution]

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@Pran wrote:

I see that (for 2021), if the gains are under $80800, then the tax rate is 0%.  Can any one please confirm if that’s the case?

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No, that is not the case. The tax rate on long-term capital gains is 0% if your total taxable income, including the long-term gain, is under $80,800. (The $80,800 figure is for 2021, for married filing jointly or qualifying widow(er).) Taxable income is basically Adjusted Gross Income (AGI) minus deductions. For 2021 taxable income is on Form 1040 line 15.

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@Pran wrote:

Is this applicable even if earnings with my full time job wages are over 100K.?

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Your income from your job affects the tax rate that applies to your long-term capital gain. The long-term capital gain is "stacked" on top of your taxable ordinary income when calculating the tax on the gain. As an example, let's say that you are married filing jointly, your total ordinary income is $110,000, and you use the standard deduction. If you are both under 65 and not blind your standard deduction for 2021 is $25,100. Your taxable income, without the long-term capital gain, is $84,900 ($110,000 - $25,100). So your ordinary income puts you over the $80,800 top of the 0% bracket. All of your long-term capital gain will be taxed at 15%. (If your taxable income, including the long-term capital gain, is over $501,600 some of the gain will be taxed at 20%.)

[PT313]

I have the same question. I can't believe it! Last year, the income limit was $500K! But I also found that the long term capital gain was charged more than 15% tax!

The amount of LTCG was entered into schedule 2 line 12: Net investment income Tax, Attch Form 8960 , and it was calculated in Form 8960, as listed below:

This amount was entered into form 8960 line 5a: Net gain or loss from disposition of property. Why does long term capital gain became "disposition of property"? The if your income is more than 250K (couple file join) then your total investment income, including LTGC, interest,  dividends etc. were combined and additional 3.8%  was added to the total tax!  

Do you all notice the form 8960 and the "other Taxes" in form 1040 line 23?

 Any one knows why? 

Thanks!

[ThomasM125]

Long term capital gains result from the disposition of property since it comes from the sale of investments (property.)  Form 8960 is the form on which the Net Investment Income Tax is calculated at 3.8% of net investment income.

The tax reported on form 8960 flows to line 12 on Schedule 2, and from there winds up on line 23 of your form 1040 (Other Taxes.)

@PT313 

[rjs]

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@PT313 wrote:

Why does long term capital gain became "disposition of property"? The if your income is more than 250K (couple file join) then your total investment income, including LTGC, interest,  dividends etc. were combined and additional 3.8%  was added to the total tax!  

Do you all notice the form 8960 and the "other Taxes" in form 1040 line 23?

 Any one knows why? 

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@PT313 

I'm not sure exactly what you're asking. Property does not mean just real estate. Anything you own is property, including stock or other investments. When you sell stock, that's a disposition of property. If you sell it at a profit, the profit is capital gain, either short-term or long-term depending on how long you owned it. The disposition (sale) of the property produces the capital gain.

Are you asking why there is Net Investment Income Tax? It's simply because it's part of the tax law.