Long Term Capital Gain and AGI

[soyuppy]

I'm having problem understanding how Turbo Tax treat  Long Term Capital Gain(LCTG) with respect to AGI.

My understanding per Tax Code, Long Term Capital Gain is tax separately.  Majority of people would pay 12% flat on LTCG.

So I have scenario I'm trying validate using Turbo Tax Premier.  My current 1040 form show:

• AGI: 142K
• Expect Tax Due: 4K

Then I entered LTCG of 10K

• AGI: 152K
• Expect Tax Due: 12.244K

How is this possible?  10K LCTG gain has $8,244 tax liability and push up AGI?

[DoninGA]

Do you have a question?

[soyuppy]

I'm having problem understanding how Turbo Tax treat  Long Term Capital Gain(LCTG) with respect to AGI.

My understanding per Tax Code, Long Term Capital Gain is tax separately.  Majority of people would pay 12% flat on LTCG.

So I have scenario I'm trying validate using Turbo Tax Premier.  My current 1040 form show:

• AGI: 142K
• Expect Tax Due: 4K

Then I entered LTCG of 10K

• AGI: 152K
• Expect Tax Due: 12.244K

How is this possible?  10K LCTG gain has $8,244 tax liability and push up AGI?

[soyuppy]

yes, I hit post without typing in any message.  see my 2nd followup as reply

[DoninGA]

@soyuppy The TurboTax forms and calculations are not yet finalized for the 2021 tax year until the IRS releases and approves the forms/calculations later in 2022.

See this IRS tax topic for Capital Gains and Losses - https://www.irs.gov/taxtopics/tc409

[GeorgeDenseff]

Long term capital gain is not added to your AGI.  It is taxed separately at its own rate.

[rjs]

@soyuppy 

The tax rate on long-term capital gain depends on your taxable income, not AGI. For 2020 or 2021, taxable income in on Form 1040 line 15.

There is no 12% tax rate for long-term capital gain. For 2020 and 2021, the tax brackets for long-term capital gain are 0%, 15%, and 20%, depending on filing status and taxable income.

Long-term capital gain is included in the AGI and taxable income on Form 1040, but the tax is calculated separately. The tax calculation is done on a worksheet, usually the Qualified Dividends and Capital Gain Tax Worksheet, or possibly the Schedule D Tax Worksheet.

[VolvoGirl]

And, When you enter one taxable transaction, you can't just watch the monitor. You increased your overall adjusted gross income and with that come many other changes in your return, not just the incremental tax on the one transaction. More income can make more of any Social Security taxable and can increase or decease any credits you qualified for.  

[rjs]

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@soyuppy wrote:

My current 1040 form

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Is "current" 2020 or 2021?

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@soyuppy wrote:

How is this possible?  10K LCTG gain has $8,244 tax liability and push up AGI?

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Increasing AGI above $150,000 could have affected many other things on your tax return, as VolvoGirl suggested. If you are looking at 2020, it would make you ineligible for the unemployment exclusion. For either year it could have reduced or eliminated a number of other credits or deductions. So the additional $8,244 tax is not only tax on the long-term capital gain. Go through the Form 1040 and Schedules 1, 2, and 3 and see what else changed.

[rjs]

If your AGI is $152,000, your taxable income probably puts your long-term capital gain in the 15% bracket.

[soyuppy]

The exercise ran through Turbo Tax Premier 2020.  This is not a pre-release or early release of turbo tax for 2021.  

Whatever tax rate that is scheduled/define in the turbo tax, it's irrelevant.

They key points here are:

*  Why/How Long Term Capital Gain increate AGI.

* Why/How Long Term Capital Gain tax rate is not what is published on 2020 Tax Table for LTCG, which should be 15%.

If anyone who has TTax Premier 2020 try out this exercise and have different result than mine, please share.  I'd love/happy to know what I did wrong.

[soyuppy]

Here's an example with screen shot from TTAX Premier 2020

Notice the Federal Refund and CA Refund.  The LTCG amount amount would be 10,000

Now. after once the OK/Continue button is click, the amount change automatically.  Fed Refund reduce to 4968.  Which mean 7744 is taxed on 10K gain

What am I missing/doing wrong here.

[soyuppy]

This is a Long Term Capital Gain.  I understand that I have to pay tax on LTCG. But it's a separate tax base on LTCG tax rate.  And it's NOT suppose to change your AGI.  LTCG does not change/affect your AGI.   

[Mike9241]

Tax is based on taxable income and its components not AGI. so what is your taxable income (line 15 of 1040)

as an estimate to have only a $4K tax on $142K AGI if single would mean taxable income is about $35K

[Critter-3]

@soyuppy 

Since you must be using the downloaded program please switch to the FORMS mode and review the Cap Gains tax worksheet to see exactly how the tax is being calculated.   The Cap gains is NOT a separate tax but the income is taxed at different rates after taking calculating the taxable income.   May I suggest you print out that worksheet and the form 1040 & Sch 1 & Sch D  then get a couple of highlighters to match the same amounts on all of those forms ... it may make better sense that way.  

Also you may have some cap gains that are taxed at 0% and some at 15% or maybe 20% so read the form carefully.