If a retired couple with pension incomes totaling $100,000 sell their home of many years and realize a $500,000 long term capital gain (after $500,000 exclusion), how is the 1040-SR line 16 tax computed? I cannot imagine how our line 16 tax gets computed.
Thank you,
Gorno
Your pension income will be taxed at a tax rate as if that were your only income. The long-term capital gains from your home that are over and above the exclusion on the home sale will be taxed at the lower capital gains rate.
In addition to that, you have a net investment income tax of 3.8% on your income from capital gains which is over $250,000. That additional tax is not included on Line 16.
These websites illuminate the topic well:
2021-22 Capital Gains Tax Rates and Calculator - NerdWallet
2021-2022 Long-Term Capital Gains Tax Rates | Bankrate
Selling a home is non-trivial. My simple 9-page Federal HRB return blows up to 49 pages.
With pencil and paper, I finally reproduced the HR Block tax computation exactly,
via the NerdWallet recipe. It's well worth your time to understand the rules of
this game. E.g. we should have sold our home the year RMD was waived.
Live and learn, alas.
-Gorno