pshonore wrote:Actually long term cap gains are treated the same as QDs. Those falling in the 15% bracket and lower are generally not taxed. The excess is taxed at 15% unless you're over 400K (450K MFJ status)
Here is the actual situation. He will have income of about $4000 this year (this is all from cashing an I-bond). He invested $200K from a taxable account into a variable annuity offered by an insurance company 10 years ago. Now the 10-year holding period has ended and he has about $300k. His plan is to sell all of it... and so he will have a $100,000 long-term capital gain. Not sure if the variable annuity structure changes the tax situation of the long-term capital gain.
Now I was thinking that the $4,000 is his income and the $100,000 long-term capital gain would get preferential tax treatment and be taxed at the 0% rate (well some at zero and some at 15%). Normally, since we support him, we claim him as a dependent. In any event, his filing status will be individual.
I will put this through Turbo tax and see what happens, but before I do that I thought it might be a simple question and answer.
I am wondering if this money being in a variable annuity will change the $100K from long-term gain to something else.
As others have suggested, my recommendation to him is (at the least to) take half this year and half next year... but he is very risk averse. He has spent the last decade watching the daily value of this investment change and he is ready to be done with it. The annuity is invested about 50% bonds and 50% equity.
PS "thanks" to the software for changing my original phrasing to "foggy brain" for political correctness.