Long term capital gain treated as ordinary income.

[gagan5987]

I saw in form 1040, we have two values X (short-term gain) and y (long-term gain).

Part I Short-Term Capital Gains and Losses—  Line number 7 (Y)

Part II Long-Term Capital Gains and Losses—Generally Assets Held More Than One Year - Line number 15 (Y)

Part III Combine lines 7 and 15 and enter the result, we combine both W = X+Y.

then added " Capital gain or (loss). Attach Schedule D if required. If not required, check here " W added in ordinary income. no, differentiate between long-term and short-term gain.. where i am missing the information? 

[tagteam]

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@gagan5987 wrote:

where i am missing the information? 

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Can you post some actual (or even hypothetical) numbers?

It is doubtful that you are missing anything. Capital losses offset capital gains and, assuming you have a net gain, it is taxed accordingly in the program.

Net long-term capital gains are taxed at a preferential rate while net short-term gains are taxed at ordinary income tax rates.

[Mike9241]

if you have a net capital loss or net short-term gains exceed net long-term losses, then everything is subject to oridiary income taxes.

however, if your concern is  that W appears on line 7 of 1040 even though you have net long term capital gains , that's just the way the forms work. the actual tax in this case is figured on the qual div and cap gain worksheet.

[gagan5987]

Net short-term capital gain or (loss) = 7079

Net long-term capital gain or (loss).  = 1088

Combine lines 7 and 15 and enter the result = 8167

Income is 255 K and it added 8 K more. my understanding is it supposes to be calculated tax for 1088 another way. 

[gagan5987]

Understood.. if we have a short loss then it is offset with the long-term gain. however, I have gained in both. but only confusion is it suppose to be treated differently in tax slab.  

[VolvoGirl · Accepted solution]

It is.  If you have capital gains or qualified dividends the tax is not taken from the tax table but is calculated separately from schedule D.  The tax will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet.  It does not get filed with your return.

In the online version you need to save your return as a pdf file and include all worksheets to see it.

For the Desktop version you can switch to Forms Mode and open the worksheet to see it.  Click Forms in the upper right (upper left for Mac) and look through the list and open the Qualified Dividends and Capital Gain Tax Worksheet.

[SweetieJean]

Are you looking at the TT Income Summary?  That only lists the gross income figures, and is just FYI. 

[SweetieJean]

Also be aware of this:

Net Investment Income Tax | Internal Revenue Service (irs.gov)

[gagan5987]

Do you mean I have manually changed the form? to show long term capital gain 

[NCperson]

@SweetieJean - the NIIT has no impact to the question.  The tax is 3.8% (once you exceed the income threshold) whether we are talking short term or long term gains, so they are just combined for NIIT purposes.  

[VolvoGirl]

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@gagan5987 wrote:

Do you mean I have manually changed the form? to show long term capital gain 

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I don't know what you mean.

[NCperson]

@gagan5987 = please confirm you have reviewed the Qualified Dividends and Capital Gain Tax Worksheet. referenced earlier in this thread.  you questions will be answered by reviewing that worksheet. 

[gagan5987]

@NCperson I don't have the " Qualified Dividends and Capital Gain Tax Worksheet" i have only Schedule D (form 1040)

[NCperson]

@gagan5987 - if you are using Turbo Tax, then you have access the worksheet in question.  Instructions were provided earlier in this thread. In fact, trust the software is calculating everything ocrrectly.  don't over think it. 

If you are not using Turbo Tax (and trying to do this with pencil and paper), high risk of getting it incorrect as you need to complete the worksheet to determine the tax.  the worksheet is on page D-16 at this link  https://www.irs.gov/pub/irs-pdf/i1040sd.pdf

[DoninGA · Accepted solution]

@gagan5987  @NCperson Note at the top of the Schedule D worksheet on page D-16 of the Schedule D instructions it provides information on when to use the Schedule D Worksheet, the Qualified Dividends and Capital Gains Worksheet or neither.

Complete this worksheet only if line 18 or line 19 of Schedule D is more than zero and lines 15 and 16 of Schedule D are gains or if you file Form 4952 and you have an amount on line 4g, even if you don’t need to file Schedule D. Otherwise, complete the Qualified Dividends and Capital Gain Tax Worksheet in the instructions for Forms 1040 and 1040-SR, line 16 (or in the instructions for Form 1040-NR, line 16) to figure your tax. Before completing this worksheet, complete Form 1040, 1040-SR, or 1040-NR through line 15.
Exception: Don’t use the Qualified Dividends and Capital Gain Tax Worksheet or this worksheet to figure your tax if:
• Line 15 or line 16 of Schedule D is zero or less and you have no qualified dividends on Form 1040, 1040-SR, or 1040-NR, line 3a;
or
• Form 1040, 1040-SR, or 1040-NR, line 15, is zero or less.
Instead, see the instructions for Forms 1040 and 1040-SR, line 16 (or Form 1040-NR, line 16).

If the QDCG Worksheet is required that is available on the Form 1040 Instructions on page 36 - https://www.irs.gov/pub/irs-pdf/i1040gi.pdf#page=36