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Yup. Usually it's easiest to think of the capital gains tax rate and the capital gains taxable amount as two independent values.
The rate (0,15,20,your tax bracket) is purely based on when you bought the asset and when you sold it. If that duration is less than a year, then the gain is taxed as regular income and the actual rate depends on what tax bracket you are in for that filing year (including the gain as income). If that duration is a year of more, then the gain is taxed at either 0, 15, or 20 percent depending on your income (where your income does _not_ include the gain).
The amount that is considered the actual "gain" is more complex as it depends on several different factors (e.g. have you owned the home for 2 years or more, improvements, etc). It could range anywhere from the full difference in selling vs purchase price (not exactly, but close enough for a CD thread) to $0 (and it goes without saying that it could also be a loss).
Example: Assume $100K/year regular income and $100k gross proceeds from the house sale (we'll ignore improvements and some of the other less common scenarios for now)
Scenario 1: Buy and sell within a year
Taxable Income: $200k ($100k regular income + 100k short term capital gain)
2021 Taxes: $64k (32% tax bracket for $200k income)
Scenario 2: Buy and sell > 1 year < 2 years
Taxable Income: $100k ($100k regular income)
2021 Taxes: $39k ($24k based on 24% tax bracket + $15k long term capital gain at 15% LTCG rate)
Scenario 3: Buy and sell > 2 years and primary residence
Taxable Income: $100k ($100k regular income)
2021 Taxes: $24k ($24k based on 24% tax bracket + ($15k long term capital gain - $250k exclusion = $0 net gain))
Should go without saying but the above is greatly simplified and there are a whole raft of other variables that play into how much one would truly owe in taxes, pay in additional mortgage interest/property tax (and how much of that one can further deduct), etc, etc. This is just for illustrative purposes.
Well done, Mr. Nerd.
Now for Scenario 4:
Scenario 4: Buy and sell > 1 year secondary (vacation) home
Taxable Income: $100k ($100k regular income)
2021 Taxes: $39k ($24k based on 24% tax bracket + $15k long term capital gain at 15% LTCG rate)
Scenario 2: Buy and sell > 1 year < 2 years Taxable Income: $100k ($100k regular income)
2021 Taxes: $39k ($24k based on 24% tax bracket + $15k long term capital gain at 15% LTCG rate)
Scenario 3: Buy and sell > 2 years and primary residence Taxable Income: $100k ($100k regular income)
2021 Taxes: $24k ($24k based on 24% tax bracket + ($15k long term capital gain - $250k exclusion = $0 net gain))
Quote:
Originally Posted by Chas863
Well done, Mr. Nerd.
Now for Scenario 4:
Scenario 4: Buy and sell > 1 year secondary (vacation) home Taxable Income: $100k ($100k regular income)
2021 Taxes: $39k ($24k based on 24% tax bracket + $15k long term capital gain at 15% LTCG rate)
As a side note to this CG discussion, you both appear to have made the common mistake of confusing a marginal tax rate with someone's overall effective tax rate. That 24% tax rate would only pertain to the taxable income over $86,326 in 2021 for a single filer, so only the last $13,674 of that $100k taxable income.
So instead of the $24k tax liability in your examples for someone with $100k in taxable "regular" income (not including any capital gains computations), the correct tax owed would only be $18,015, not $24k.
That doesn't change the overall points you are making about how capital gains are determined, but it could give the wrong impression to people regarding how much income tax someone with $100k in taxable income would normally pay. Their effective tax rate would be 18%, not 24%.
As a side note to this CG discussion, you both appear to have made the common mistake of confusing a marginal tax rate with someone's overall effective tax rate. That 24% tax rate would only pertain to the taxable income over $86,326 in 2021 for a single filer, so only the last $13,674 of that $100k taxable income.
So instead of the $24k tax liability in your examples for someone with $100k in taxable "regular" income (not including any capital gains computations), the correct tax owed would only be $18,015, not $24k.
That doesn't change the overall points you are making about how capital gains are determined, but it could give the wrong impression to people regarding how much income tax someone with $100k in taxable income would normally pay. Their effective tax rate would be 18%, not 24%.
You caught me I actually started writing the post with the accurate calculation but it really made the examples hard to follow and a bit verbose so I made an executive decision Hopefully no one filed their taxes based on my example
As a side note to this CG discussion, you both appear to have made the common mistake of confusing a marginal tax rate with someone's overall effective tax rate. That 24% tax rate would only pertain to the taxable income over $86,326 in 2021 for a single filer, so only the last $13,674 of that $100k taxable income.
So instead of the $24k tax liability in your examples for someone with $100k in taxable "regular" income (not including any capital gains computations), the correct tax owed would only be $18,015, not $24k.
That doesn't change the overall points you are making about how capital gains are determined, but it could give the wrong impression to people regarding how much income tax someone with $100k in taxable income would normally pay. Their effective tax rate would be 18%, not 24%.
And you caught me too. Thanks. I thought that $24k sounded high for only $100k in income, but I just copied what austinnerd had down without really checking it. I plead guilty as charged.
Note to Self: Don't take anyone else's figures to be correct unless/until you have actually done the calculations yourself.
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I actually started writing the post with the accurate calculation but it really made the examples hard to follow and a bit verbose so I made an executive decision 
Hopefully no one filed their taxes based on my example 
