Capital gains above 15%

[ScottM4400]

I have inputted all my taxes and TurboTax calculated on the Schedule D tax worksheet that my taxable income excluding capital gains is $400 below the married filing jointly threshold for 20% capital gains tax.  So I naturally assumed I would be paying 15% on all my capital gains.  But within the worksheet it is taking that $400 reduction in my ordinary income below the $553K threshold and allowing that $400 to be taxed at 15%.  And then all of my remaining capital gains after they lower it by $400 is taxed at 20%.  Does that seem to be accurate?  Why would I not pay 15% of all capital gains?

[rjs · Accepted solution]

The tax rate for qualified dividends and long-term capital gain is based on your total taxable income, including the capital gain. It's the taxable income on Form 1040 line 15.

[ScottM4400]

Ah I didn't realize that.  Thank you.  Although strange they are then giving me a tax break back to 15% on the $400 below the $553k threshold.

[rjs]

That's the way it works. All of the qualified dividends and long-term capital gain is not necessarily taxed at the same rate. It works like the tax brackets for ordinary income. The taxable income can straddle the bracket thresholds. Some of it falls in the 15% bracket, and the rest falls in the 20% bracket.

[Opus 17]

Think of the income as going on a stack.  Stack up all your non-CG income first, then stack the CG on top.  In your case, the first $400 of CG on the stack is in the 0% range, and the rest of the stack is in the 15% range.