Refund and Capital Gains

[Matt 126]

Hello my wife and I have about 90K in W2 income. She acquired stocks from her grandmother which my wife sold and had around 8500 in capital gains. When the investment advisor talked to her in April the Investment Advisor said she would be paying around 1000 in Federal Taxes. As I was doing the turbotax forms and inputting all the information in I see that "Tax on this income is included in your total tax due of 0? This amount may change as you work on your return". So why are we not taxed on this capital gain then?

[Bsch4477]

Are you through entering all of your income?  As the program said, your tax may change as you go on. 

[GeorgeM777]

You will pay tax on the capital gains; however, if your return has not be completed in full, your final tax due amount may not be reflected in the information you currently have available.  Do you have any capital losses?  Capital losses will offset the capital gains.  

Moreover, if your spouse inherited the stocks, then your spouse gets a "stepped up basis."  Let us know if the stocks in question were inherited as a stepped up basis would apply in that situation.  A stepped up basis could result in a smaller capital gain.  

@Matt 126

[Matt 126]

Hi no its still no impact. I finished all the way. It is because of our joint filing standard deduction of 25900?

[Matt 126]

I did however jump from no refund or payment to a 300 payment that we owe in state tax that I failed to mention 

[Matt 126]

Total income with w2s and 1099 B 

98587

-25900

=72687

x 9.8%

tax liability is 7,146

taxes paid 8260.00

fed refund 1114.00

[Matt 126]

@GeorgeM777 

[Opus 17 · Accepted solution]

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@Matt 126 wrote:

Hi no its still no impact. I finished all the way. It is because of our joint filing standard deduction of 25900?

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If your regular income is in the 10% or 12% bracket, long term capital gains have zero tax.  Once you move up to the 22% tax bracket, long term gains are taxed at 15%.

For a married couple filing jointly, the 12% bracket ends at $83,550 of taxable income.  When you add the standard deduction of $25,900, that means that first $109,450 of gross income is taxed at 12% or less, so you are in the zero bracket for long term capital gains.  With an income of $98K plus 8.5K of capital gains minus the standard deduction, your long term capital gains are tax-free.

If you added more income, so that your total income (including the capital gains) was more than $109,450, you would start to see 15% tax on part or all of the gain. 

[Mike9241]

if your entire income consisted of $90K in wages and $8.5K in long-term capital gains even using the standard deduction that $8.5 is taxed a zero percent. gain/loss from sale of inherited property is automatically long-term but you must indicate in Turbotax it's inherited from the date acquired box drop down options. when you are done entering all your data look at the qualified div and capital gain worksheet

line 9 shows amount taxed at zero

line 17 the amount taxed at 15%

line 20 amount taxed at 20%

your advisor was only estimating 

[Matt 126]

Do you know why our blended tax rate was only at 9.8%?

[Opus 17]

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@Matt 126 wrote:

Do you know why our blended tax rate was only at 9.8%?

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That's just Turbotax averaging your total income against your total tax.  It's for information only, has nothing to do with your tax return.  In your case, it means that, taking account of gross income, deductions, nontaxable income, and the fact that some of your income was taxed at 10% and some was taxed at 12%, your overall tax was 9.8% of your income.

[Matt 126]

Hi @Opus 17  last question for you. Since there was capital gain will that be taxed in the state of PA? I see that there is an owed portion of 300.00? I am assuming that it has something to do with Capital Gains? Please let me know, I appreciate all your assistance!

[Opus 17]

@Matt 126 

most states do not have a separate capital gains tax rate. You will probably be taxed on your gains combined with all your other income at the regular Pennsylvania rate. So instead of having $96,000 of income this year, you have $105,000, and that may result in a tax bill if you did not have enough withheld.