Long Term Capital Gains Taxed at Incorrect Rate (Too high)

[LakerMan]

I have some LT capital gains this year (Box E). Turbotax is charging me an effective tax rate of 21.8% on the gain when it should be 15% based off my tax bracket. Why would this be happening? This is happening on more than one transaction and makes a huge difference to the taxes I paid.

Assuming this is wrong, it is pretty annoying that I had to deduce this myself, as I was ready to pay even though the tax bill seemed much higher than I thought it should be, but I tested removing those LT gains and was able to back into the 21.8% rate. 

[LudwigVan_fan]

Try reviewing this and see if that answers your questions

https://ttlc.intuit.com/community/investments-and-rental-properties/discussion/re-long-term-capital-...

[Mike9241]

also, review the capital gain and qualified dividend worksheet.    if your investment income is too high there is an additional 3.8 % Medicare tax computed on form 8960

[LakerMan]

Thanks - I've confirmed that the 3.8% does apply to me, but I misstated my rate above. The implied tax rate is 23.8%. I've tried entering it both imported transactions and as a summary, but the calculation is the same. This implies I am getting charged at the 20% LT capital gains tax rate, but my taxable income is less than the $502K limit for Married Filing jointly. Would there be any reason I would be charged at the 20% rate? 

[LakerMan]

I also checked my Schedule D and all looks fine. 

[mesquitebean]

As Champ @ Mike9241  mentioned above, you should also look at the Qualified Dividends and Capital Gains Tax Worksheet to see the actual calculation in detail.   That worksheet breaks down the calculation by each of the capital gain rate brackets, and you can see how much of it is taxed at each capital gain rate bracket.

You have not mentioned that you looked at that worksheet.  

Are you using desktop software (CD/download?)   If so, then go into Forms Mode, and you can find that worksheet in the left column list of forms.   In the forms list it is abbreviated as "Qual Div/Cap Gn".

If you're using Online TurboTax, we can tell you how to get it.

[LakerMan]

Thanks - I'm on PC/CD and looked at the Qualified Dividends and Capital Gains Tax Worksheet and I appear to be taxed at the 15%, which looks correct. When I hover over my "Federal Tax Due" in TT however, it is 8.7% higher than the amount on Line 25 on the Qualified Dividends and Capital Gains Tax Worksheet (the line labeled "Tax on all taxable income"). The figure on line 22, representing my non-Schedule D tax is also 1.6% higher than what I calculate manually by using the IRS Tax computation worksheet. 

Any ideas based off that? 

[dmertz]

This probably has something to do with the increase in AGI caused by the entry of the LTCG.  Do you have Social Security income of which more is getting taxed due to the increase in AGI?  Any decrease in tax credits due to the increase in AGI?

Compare Form 1040 with an without the LTCG to see what else if being affected.

[LakerMan]

No, I'm already maxed on my SS income and I'm firmly within the 15% LT cap gains tax with and without the cap gains that are driving my tax. 

I have $104K in LT Cap gains that are driving my taxes up by almost $25K. When I view the Qualified Dividends and Cap Gains Tax worksheet for both scenarios, my taxable income changed by $15.6K, which is correct as it is 15% of the $104K. I also realize I have another 3.8% tax, adding another $4K (confirmed on Form 8960). That doesn't account for the remaining $5K increase though. Any ideas? Thanks

[LakerMan]

To be clear, the $15.6K is not an increase in taxable income, but rather the tax on my taxable income. 

[DPH2023]

I have the same problem this year.  Please let us know whether it is a problem with the Turbo tax. Thanks!

[JamesG1]

Does your tax return contain a Qualified Dividends and Capital Gain Tax Worksheet (page 36) or a Schedule D Tax Worksheet (page D-16) to compute your income tax?

Review the worksheet to see how your income tax was computed and how your long-term capital gains were taxed in the calculation.  The worksheets are able to segregate the capital gains and assess the tax at different tax rates.

Post here if you have further questions.

In the online versions, you may view or print at Tax Tools / Print Center / Print, save or preview this year's return / Include government and TurboTax worksheets after you have paid for the software.

In the Desktop versions, one can look at the tax return by clicking FORMS, or by viewing the PDF through the Print Center.

@DPH2023