If long term cap gains tax bracket is 0%, will it still get taxed as regular income? It seems that TurboTax is doing that. My tax bracket is 15% with the cap gains.

[peterl09]

I pretty confident these are long term capital gains. 

[VolvoGirl]

Even though the full amount shows up as income on the first page of the 1040 or 1040A, if you have capital gains or qualified dividends the tax on line 44 (or 28) 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.

[peterl09]

Yes, it shows up on the 1040 as income, which I believe is correct, what I don't believe is correct is calculation of the tax.  If I remove the capital gains altogether, there is a calculated tax which is a small amount, say $150, but when I add the long term gains back, the total income show $37,000 (which puts me in the 15% tax bracket).  That means I should be at a 0% tax rate for the gains, so that mean the taxes should remain around $150 as calculated without, but it shows up at $4000+ in taxes, not cool.  I'll dig into the actual form to see what might be going on, but I would think that TurboTax should calculate this correctly.  Could this be a bug in TurboTax?

[VolvoGirl]

When you enter one taxable transaction, you can't just watch the monitor.  You increased your overall adjusted gross income and with that come many other changes in your return, not just the incremental tax on the one transaction.

Even though the Capital Gains is taxed at a different rate it still increases your income and AGI so you might be losing some of your credits or deductions, like the EIC or the limit on Medical deductions (only over 10% of your AGI) or Employee Job Expenses (only over 2% of AGI).

[peterl09]

I'm using the standard deductions, so I wouldn't you expect that the taxes should be the same as without entering the long term cap gains?

[VolvoGirl]

You would have to compare every line on the tax return.  Print out the 1040 without the Capital Gains and then print it with the Gains and see what lines are different.

[fanfare]

your transaction must be a long term transaction (more than one year holding period).
This would appear on Form 8949 Part II, or Schedule D Line 8a.
If it is not in one of these places you don't get the reduced tax rate.