Excluded foreign income is increasing my long term capital gains rate, is that right?

[roycepheus murphy]

I have both long term capital gains and fully excluded foreign income (below $120k).

The foreign income is eating into my $89k zero rate long term capital gains amount just like w2 income would, pushing more of the capital gains into the 15% bracket. This means I'm paying extra tax despite the foreign income being excluded.

Has that changed in 2023? I've had look at the Qualified Dividends and Capital Gain Tax Worksheet—Line 16 on page 37 but not the 2022 version.

thanks

[pk]

@roycepheus murphy , without more details about the exact numbers ( facts and circumstances ), I am not able to  answer  with any specificity.  However, in general  there is a separate worksheet to compute  tax liability in the presence of Foreign Earned Income Exclusion.   It first computes taxes  ( say US$AAAAA)  as if there was no  income exclusion i.e. your world income including the foreign income.  Then it computes  the tax liability on the excluded income ONLY ( say US$BBBB)  Your final tax liability  is the difference  i.e. US$AAAAA LESS US$BBBB.  This will push you into a higher marginal tax rate.   Similarly your Capital Gain Tax bracket would be based on your  world income without regard to  any exclusion.

Hope that makes sense.

Is there more I can do for you ?