Filing status is married joint. Using my 2019 figures, my taxable total income was 44K and my adjusted gross income was 71K. To keep it simple let's say that for 2021 my numbers are the same except I want to add a long term capital gain. I would be able to take a long term gain up to about 36K and it would be taxed at 0%. Correct?
First, short term capital gains are taxed as ordinary income, so this would always add to your taxable income. Then, once your taxable income exceeds the standard deduction for your circumstances this would all be taxable. In your circumstances the tax rate is 12%. For taxable income of $19,751- $80,250 the tax is $1975 + 12% of the amount over $19,750. Hence, if this was all short term capital gain, your taxable income would be $44,000 + $36,000 = $80,000, and the tax would be $9,205.
On the other hand, if this is all long term capital gain and your ordinary taxable income is $44,000, then the tax rate on this gain would be 0% and your tax on ordinary income would be unchanged.
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Thank you both for your replies which confirm that my understanding was correct.
Given that, I will expand my question. I have, as I said, long term gains. But I also have long term losses and, in 2021, I expect ( let's say significant) short term gains but no short term losses. In order not to pay tax on the short term gains I would have to offset those short term gains with long term losses. However, unfortunately those long term losses would first be used to offset the long term gain. Correct?
That's not what I want.
You are correct. Long-term losses will be netted with long-term gains and reduce the net long-term gain. You don't have any choice about how gains and losses are calculated on your tax return.
I can only think of two possible ways to get around this, and you might not be able to do either. One is to find some short-term losses that you can take in 2021 to offset the short-term gains. The other is to postpone the short-term gains and long-term losses to 2022.
One other caution - Tax laws can change. The treatment of long-term gains could change. It's even possible that changes could be made that affect 2021. And it's certainly possible that there would be changes for 2022.