Capitol Gains & Income Taxes- Doing the math (pay, rate, increase)

[Wes Schultz]

Many websites conflict with what I found on the IRS Website cut & pasted below. It's just me and my husband. No dependents

My income-$25K
Husband Self Employment- 25K
-------
50K Earned Income (Ordinary Income)
Land Profit- $60K (for both parcels)

Both are long term capitol gains held over 1 yr at the sale

IRS STATES
https://www.irs.gov/taxtopics/tc409.html
"Capital gains and losses are classified as long-term or short-term. If you hold the asset for more than one year before you dispose of it, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term"

"The tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you're in the 10% or 15% ordinary income tax brackets"

TAX BRACKETS
$0-$18,650- 10% tax bracket
$18,651-$75,900 15% tax bracket


Taxes are like a pyramid...going thru starting at zero until you get to the top but we stop at 15% when it comes to ordinary income/earned income
50K earned income combined
20K (estimate of personal exemptions, etc)
----------
30K taxable earned income
+50K land profit
---------
80K total

Except only $75,900 is allowed to stay in the 15% tax bracket.
Or do I only count the EARNED INCOME when I do the calculations to ensure I remain within 15% or under?

We will never make a ton of money flipping small parcels of land or fixer uppers but it helps greatly.

The goal is to never pay taxes on any of these flips after owning them for 1 yr and 1 day

Thanks for any advice

[mathjak107]

All earned income and other sources of income fill the bucket first.

What ever space is left in the 15% bracket can be filled with a long germ capital gain up to the point the bucket over flows .

Long term capital gains can be taxed any where from zero to almost 24% .
Remember , states that have taxes do not recognize zero capital gains brackets so the gains can be taxible

[Wes Schultz]

Originally Posted by mathjak107

All earned income and other sources of income fill the bucket first.

What ever space is left in the 15% bracket can be filled with a long germ capital gain up to the point the bucket over flows .

Long term capital gains can be taxed any where from zero to almost 24% .
Remember , states that have taxes do not recognize zero capital gains brackets so the gains can be taxible

Great metaphor, thank you. So you do add them up....I

I'll check my state (Calif) if it recognizes zero capitol gains now, I think so

Thanks again mathjack

[Wes Schultz]

California makes you pay state tax and it is very high

But you don't pay Federal so that helps a ton

[mathjak107]

the problem with capital gains is they can push income in to amt territory too .

we sold some lease rights and not only got hit with the 20% capital gain but the almost 4% medicare surcharge too. that tripped the amt on all other income and we had a 16k amt penalty on top of the regular tax due .

it also increased our medicare premiums by an additional 600 a month because medicare goes back two years to set your premium amount .

we were still working and not on medicare yet but since it is based on 2 years earlier it got us .

then there was nys and nyc tax too .

all in all we ended up no where near the proverbial 15% capital gain rate

[Wes Schultz]

Originally Posted by mathjak107

the problem with capital gains is they can push income in to amt territory too .

we sold some lease rights and not only got hit with the 20% capital gain but the almost 4% medicare surcharge too. that tripped the amt on all other income and we had a 16k amt penalty on top of the regular tax due .

it also increased our medicare premiums by an additional 600 a month because medicare goes back two years to set your premium amount .

we were still working and not on medicare yet but since it is based on 2 years earlier it got us .

then there was nys and nyc tax too .

all in all we ended up no where near the proverbial 15% capital gain rate

Thank you!! What valuable information. I never thought about alt or even knew they had a lookback of 2 years for medicare. We are jamming in trying to flip houses in the next five years or so before signing up for medicare. We got smarter late in life