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I want to make absolutely sure I am understanding this correctly.
The tax rate applied to Long Term Capital gains is determined by ones OTHER Regular income -not the amount of capital gains. Thus a couple making a regular income of under $75,000 would pay a 0% rate on the long -term capital gains even if the capital gains was $2 million. The tax rate would NOT be assessed on any part of the $2 million capital gains and the IRS would get none of the $2 million.
it says is all here: Long-term capital gains and qualified dividends
A top rate of 15% applies to qualified dividends and the sale of most appreciated assets held over one year (28% for collectibles and 25% for depreciation recapture) for single filers with taxable income up to $415,050 ($466,950 for married filing jointly). Long-term capital gains or qualified dividend income over that threshold are now taxed at a rate of 20%.
EXAMPLE: If a married couple already has $466,950 of taxable income and an additional $100,000 in long-term capital gains and qualified dividends, the entire $100,000 would be subject to the 20% rate. If, however, they only had $400,000 of taxable income and $100,000 in long-term capital gains and qualified dividends, then $66,950 of the additional amount would be taxed at 15% and $33,050 would be taxed at 20%.
No one sells all their assets in one year. You would pay 15 percent on what you drew, if your income was 75K.
I don't think either of you are following me - perhaps my fault.
Yes it is all sold in one year.
Is the tax rate based on the OTHER REGULAR income bracket ( not including the capital gains) OR is the capital gains included in determining income bracket?
i follow you . but your thinking is wrong and way off base . the capital gain income is certainly added in to determine your rate .
picture a bucket and the top of the bucket is 75.300.00 if married or 37650 .00 if single .
all earned income and other income goes in the bucket first. that is everything you get that is taxable other then the long term capital gain . . all that other money starts to fill up the bucket or if it goes over 75,300 if married / 37650 if single it can over flow the bucket . if the bucket is already full or overflows then your capital gain is taxed accordingly .
if the bucket is partially full you now have to add in the long term capital gain income .
if it all fits in the bucket and does not overflow , great you are in the zero capital gains bracket .
but whatever overflows the top of the bucket gets taxed first at 15% then 20% with a likely 3.8% medicare surcharge on top making the top rate almost 24% .
so if all your other income is 40k as a couple then the first 35.300 in capital gains is tax free before the bucket overflows and anything over gets taxed at 15% up until you hit the 20% level ..
so it is the total income added together that determines your rate but you have to fill the bucket in a certain order so you can't figure the capital gain in the bucket first , it must start out with all other income first and then the long term gain gets added in and you pay tax on the overflow .
be aware though that large capital gains can trigger the amt tax all to easy and that imposes a penalty on all your other income other then the capital gain . that tax can be nasty .
keep in mind exchanges will have you paying all depreciation back now .that is whether you took it or not so hopefully you took it . that can be quite a lot of tax regardless of the exchange .
we are currently at some of the overall lowest tax rates in a long time . kicking the can down the road may not be a good idea .
how would you have felt if you could have paid a 15% capital gains tax and exchanged out only to find now it is 20% plus the almost 4% surcharge making it almost 24% ? that did just happen .
The tax rate applied to Long Term Capital gains is determined by ones OTHER Regular income -not the amount of capital gains.
That is mostly correct. However, if you are in the 15% tax bracket, LTCG are taxed marginally. Only the amount of LTCG that keeps your AGI below the 15% tax bracket threshold will be taxed at 0%. Anything over that is taxed at 15%.
For example:
If I am married filing jointly and I have $50k in ordinary income and $50k in LTCG, then....
My tax bracket is 15% (determined by the $50k of ordinary income)
$23.8k in LTCG is taxed at 0% (since 23.8 + 50 = 73.8, which is the top end of the 15% bracket)
$26.2k in LTCG is taxed at 15%
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