i am in 15 %tax bracket why were capital gains added to taxable income

i sold stocks with capital gains of 27000.00 im in 15 percent tax bracket  turbo tax added this gain to taxable income  it should be tax exempt since im in 15 precent tax bracket
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    Seems from the tax-perts that it is generally considered taxable income, even though that portion of your income gets taxed at a taxable rate of zero (assuming it was a long term holding).  See http://www.taxpolicycenter.org/briefing-book/key-elements/capital-gains/how-taxed.cfm for more details.

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      Not an answer, but my understanding is that if your line 43 Taxable income is less than $70,700 (15% tax bracket) there should be no capital gains charged. My return took a planned capital gain of $34K and reduced it to 0 automatically on Sked D. That DID reduce my line 43 Taxable income to less than $70 K, but the only reason I had no capital gain to pay was because I lost $34K from my capital loss carryovers. Unless TTax has a work around, I plan to override Sked D to show NO capital gain for 2012. What is TTax's position?
      • Litning: what you plan to do is to file an illegal return.  Although the capital gains would have had zero tax in your bracket.  The capital loss carryforward still gets used up by them.  This is not a Turbotax quirk.  It's the way the law is written. And this is one that I would expect the IRS computers to flag automatically if you file that way.
      • You are right. What I wanted was a way to file properly, but still be able to take advantage of this years law that long term capital gains should not be taxed for filers in the 10 & 15% tax brackets (which I am). I dont feel that I should lose that capital gain by reducing my capital loss carryover from last year, which is what TTax was doing. After looking into it further, it looks like Chas Schwab did not check a box on my 1099 to the IRS, saying that they had verified the basis. Then Form 8949 picked that up and placed my capital gains in a section marked with a "B" (basis not reported to the IRS). However the basis was copied to form 8949. Because the numbers went into a box with the B checked, the gain was counted against past capital losses. If Box A had been checked (ie the basis was reported, which it is on Form 8949 - which is a worksheet for Sked D) then I dont think the capital gains would be taxed if I am in the 15% bracket. When I went back into TTax to the Investment Sales Summary, there is a box where I can check that the sale WAS reported on my 1099 form, which I believe is going to change that B box mark to the A box - and solve my problem - I hope. Then to cover myself I will send in the confirmation from my investment advisor in a letter to attach to my efile. I've been using TTax for a looong time; this is the first time I have had to be both CPA and programmer!
      • Well, that didn't work either! Am I wrong to believe that Capital gains are not income and not taxable if you are in the 10 or 15% tax bracket? My carryover capital losses from previous years have negated this years capital gain, but I took that gain knowing I would be in the 15% tax bracket and thought I could take some money out of my investments with 0 taxes - but I wasn't ready to sacrifice my capital loss carry forward!
      • As I said previously, Turbotax is doing it properly.  Your expectation about how things should work simply is not the way the law was written.  It's too bad you lost the expected benefit from your capital loss carryforward on your Federal return, but I hope your learning will help you plan better in the future.
      • Litning: You are conflating two entirely different concepts. "Not income" and "income not subject to tax" are simply not the same thing. If you have "income not subject to tax" and a carryover that reduces this "income not subject to tax," then you MUST apply the carryforward, even if you get no tax benefit from it. Stated differently, you cannot "bank" your carryforward and wait until you'd like to use it. You must use it as soon as you can, or it is forfeited.
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      Even though the full amount shows up as income on the first page of the 1040, if you have capital gains or qualified dividends the tax on line 44 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 worksheet.

      • Thanks, I found that about an hour ago. Unfortunately the $34K that I took in capital gains last year immediately gets reduced to 0 by some capital loss carry overs that I have from previous years. None of the forms (D, 8949, or Qual Dividends) will let me make that $34K "disappear" without taking a like amount from my carry overs. TTax seems to believe that Capital Gains should be treated as Income if it isnt reduced by past losses
      • It working right.  I don't understand your question or concern.
      • Hmmm, well it IS income regardless of what tax bracket you believe you are in. And I suppose in your case it is unfortunate that prior losses will be deducted from that income before computing the tax on the Qualified Dividends and Capital Gain Tax Worksheet (See VolvoGirl's reply). But that's the way it works.   Understanding how it all works is important when trying to maximize your captial gains and minimize taxes.
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      Those are the rules (summarized here):
      1. Capital gains must be reduce by capital losses.
      2. The NET capital gain (or loss) goes on form 1040 as part of income.
      3. The capital gain is NOT TAX  EXEMPT. It is instead subject to a 0% tax rate.
      4. The capital gain tax is calculated on a special work sheet; the "Qualified Dividends and Capital Gain Tax Worksheet"
      • First, thanks to everyone commenting here. I think that Hal Al's 4 rules have dictated my outcome; Rule 1 is the primary obstacle, but Rules 2&3 would force the taxpayer to include any additional gains to flow down to his bottom line (NOT TAX EXEMPT), causing additional taxation on other income.
                         It just doesn't seem right; it certainly isn't fair ( but then we ARE dealing with the tax code aren't we?). Consider two scenarios: Bob and Steve both are unemployed with NO income in 2012. Both have decent investment portfolios and both need $70K per year to live on, but only Steve has $70K in capital loss carryovers from 2011.
        Bob takes $70K in capital gains from his portfolio, but doesn't have to pay any tax on it because he is in the 15% tax bracket.
        Steve takes $70 K in capital gains from his portfolio also, but Turbo tax (or his CPA) first applies $70K from his previous (2011) carry over losses, and he doesn't pay any taxes either.
        Unfortunately, if what everyone is saying is correct, neither guy pays any taxes for 2012, but Bob gets a free ride and Steve takes a $70K hit on any future gains!
        Me? I'm somewhere in between these two; no income, medium pension income, social security, and investments; so I decided that 2012 was the right time (15% tax bracket) to pull some money out of my investments. Turns out that the "No tax on capital gains/15% tax bracket" rule doesn't apply uniformly to everyone!
      • The best-laid plans of mice and men oft go astray
      • Actually, Litning, if you had not had the capital loss carryforward the taxable amount of your Social Security would probably have been higher (try it and see).  And your state income tax probably benefited from the carryforward, as well.  So it probably isn't true that you got no current year benefit, although not as much as if you hand,t matched off long term gains against it.

        If you are interested in why they wrote the rules that way: the match off against current year capital gains "always" worked that way, when no one had a zero % tax rate on capital gains.  Later, "they" decided to give people in lower brackets a break by lowering the long term capital gain rate to zero, but they didn't fiddle with the underlying calculation of taxable gains, just applied the zero rate.
      • I did run the capital gain/loss scenario once to see what would happen. It did increase my taxable social security, and it also decreased my itemized deductions by increasing the 7.5% on my medical expenses and the 2% on my other deductions. So I did get some benefit from the capital gain/loss tradeoff using the previos capital loss carry over. Thanks for all of (everyone's) help. As we all know, the tax code is AFU. I would vote for the Rev Al Sharpton if he would institute a flat tax. At any % of income, I would still appreciate not wasting a full week doing my taxes every year!
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