Long Term Capital Gains rate

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viewer0
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Long Term Capital Gains rate

Post by viewer0 »

I am getting very confused with the LTCG. I understand that for Married Filing Jointly if you earn more than $496600 (in 2020), your LTCG is taxed at 20% + 3.8% NIIT. Does that mean that if your W2 income is greater than $496600, any LTCG that you incur is taxed at 20% ?
kaneohe
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Re: Long Term Capital Gains rate

Post by kaneohe »

viewer0 wrote: Fri Oct 23, 2020 9:10 pm I am getting very confused with the LTCG. I understand that for Married Filing Jointly if you earn more than $496600 (in 2020), your LTCG is taxed at 20% + 3.8% NIIT. Does that mean that if your W2 income is greater than $496600, any LTCG that you incur is taxed at 20% ?
close........the tax brackets are based on "taxable income" which means AGI less deductions so typically you would add 24K or so (std deduction) to get the 20% threshold. The CG and (QDIV) sits on top of the other income which elevates them into the appropriate tax bracket. Also assuming that by W2 income you mean Box 1 of the W2 which is your total income less tax favored things like 401K contribution,etc.
Topic Author
viewer0
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Re: Long Term Capital Gains rate

Post by viewer0 »

Correct, what I meant by W2 income is box 1.
So, in that case, in some scenarios, when you exceed the income threshold, you can have a net income less, even if you have earned more ?
e.g. if you earn $496659 ( box 1) + $1000 LTCG , you are assessed a 15% LTCG on $1000, but if you earn $496661 ( box 1) + $1000 LTCG , you are assessed a 20% LTCG on $1000 ?
kaneohe
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Re: Long Term Capital Gains rate

Post by kaneohe »

viewer0 wrote: Fri Oct 23, 2020 9:32 pm Correct, what I meant by W2 income is box 1.
So, in that case, in some scenarios, when you exceed the income threshold, you can have a net income less, even if you have earned more ?
e.g. if you earn $496659 ( box 1) + $1000 LTCG , you are assessed a 15% LTCG on $1000, but if you earn $496661 ( box 1) + $1000 LTCG , you are assessed a 20% LTCG on $1000 ?
no , there is no step function here.......if you earned 496659, your CG income would be at 496660 and above so all would be taxed at 20% (+3.8%); if you earned 496658, $1 would be taxed at 15% (+3.8%) and the rest taxed at 20%(+3.8%). Also you are neglecting the deduction (std = about 24K or so) which would reduce your taxable income
and change all these results.
Topic Author
viewer0
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Re: Long Term Capital Gains rate

Post by viewer0 »

yes, for simplicity, I neglected the std deduction, but the key is there is no step function.
So, what you are saying is that CG is always added to ordinary income up to the threshold of 496600 and the rest is taxed at 20%. Correct ?
kaneohe
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Re: Long Term Capital Gains rate

Post by kaneohe »

you got it..........a stacked bar chart is a nice way to visualize things.
viewtopic.php?t=86849 see the stacked bar chart by tfb
on 12/11/11. The chart is out of date due to recent tax law changes but the basic concept remains.
kaneohe
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Re: Long Term Capital Gains rate

Post by kaneohe »

viewer0 wrote: Fri Oct 23, 2020 9:54 pm yes, for simplicity, I neglected the std deduction, but the key is there is no step function.
So, what you are saying is that CG is always added to ordinary income up to the threshold of 496600 and the rest is taxed at 20%. Correct ?
not sure what you mean that CG is added to ordinary income up to 496600 and rest is taxed at 20%.....just don't forget
that the CG below that threshold is taxed at 15%, not at ordinary income rates. And at even lower incomes the CG rate is 0%.
Topic Author
viewer0
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Re: Long Term Capital Gains rate

Post by viewer0 »

kaneohe wrote: Fri Oct 23, 2020 10:20 pm CG below that threshold is taxed at 15%,
So, if my ordinary income ( from salary/ on W2) is $496599 ( ignore all deductions), Is $1 CG taxed at 15% and the rest of the CG is taxed at 20% ?
mr_brightside
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Re: Long Term Capital Gains rate

Post by mr_brightside »

viewer0 wrote: Fri Oct 23, 2020 9:10 pm I am getting very confused with the LTCG. I understand that for Married Filing Jointly if you earn more than $496600 (in 2020), your LTCG is taxed at 20% + 3.8% NIIT. Does that mean that if your W2 income is greater than $496600, any LTCG that you incur is taxed at 20% ?
this is correct as I understand it. obviously the worksheet will get a little involved.

from Motley Fool:

"You might owe different tax rates on capital gains if you have enough in gains to cross the income levels above. For example, say that you have $41,000 in taxable income in a given year, including $2,000 from long-term capital gains. In that case, the first $1,000 would be subject to the 0% rate, but the other $1,000 would take you above the $40,000 mark, at which the 15% rate would apply."

-----------------------------------
remember Enron?? I do
Skeeter1
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Re: Long Term Capital Gains rate

Post by Skeeter1 »

If this loads properly, this is a simple but interesting way to looking at CG.
https://engaging-data.com/tax-brackets/
sd323232
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Re: Long Term Capital Gains rate

Post by sd323232 »

Skeeter1 wrote: Sat Oct 24, 2020 8:39 am If this loads properly, this is a simple but interesting way to looking at CG.
https://engaging-data.com/tax-brackets/
whoever made that calculator is a genius
FoolMeOnce
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Re: Long Term Capital Gains rate

Post by FoolMeOnce »

Another good explainer (with outdated tax bracket numbers): https://www.kitces.com/blog/understandi ... -in-basis/
earlyout
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Re: Long Term Capital Gains rate

Post by earlyout »

Skeeter1 wrote: Sat Oct 24, 2020 8:39 am If this loads properly, this is a simple but interesting way to looking at CG.
https://engaging-data.com/tax-brackets/
Fantastic presentation of capital gain taxes. Should be added to the wiki.
Topic Author
viewer0
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Re: Long Term Capital Gains rate

Post by viewer0 »

Skeeter1 wrote: Sat Oct 24, 2020 8:39 am If this loads properly, this is a simple but interesting way to looking at CG.
https://engaging-data.com/tax-brackets/
This is fabulous; thanks
Topic Author
viewer0
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Re: Long Term Capital Gains rate

Post by viewer0 »

FoolMeOnce wrote: Sat Oct 24, 2020 9:00 am Another good explainer (with outdated tax bracket numbers): https://www.kitces.com/blog/understandi ... -in-basis/
Thanks, more involved. Will go through it soon.
ModifiedDuration
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Re: Long Term Capital Gains rate

Post by ModifiedDuration »

Skeeter1 wrote: Sat Oct 24, 2020 8:39 am If this loads properly, this is a simple but interesting way to looking at CG.
https://engaging-data.com/tax-brackets/
Love this! (Wish it included the 3.8% Net Investment Income Tax, though.)
Topic Author
viewer0
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Re: Long Term Capital Gains rate

Post by viewer0 »

FoolMeOnce wrote: Sat Oct 24, 2020 9:00 am Another good explainer (with outdated tax bracket numbers): https://www.kitces.com/blog/understandi ... -in-basis/
Can someone explain to me how he talks about increasing the cost basis by selling a stock ( and making a gain) and immediately buying back. At the time you sell, you already make the gain at a lower buying price, hence how does it matter ?
kaneohe
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Re: Long Term Capital Gains rate

Post by kaneohe »

viewer0 wrote: Sat Oct 24, 2020 11:36 am
FoolMeOnce wrote: Sat Oct 24, 2020 9:00 am Another good explainer (with outdated tax bracket numbers): https://www.kitces.com/blog/understandi ... -in-basis/
Can someone explain to me how he talks about increasing the cost basis by selling a stock ( and making a gain) and immediately buying back. At the time you sell, you already make the gain at a lower buying price, hence how does it matter ?
If you are in the 0% CG tax bracket, some do tax gain harvesting.......you sell stock at a gain making sure that your CG doesn't put you in a higher bracket. You pay 0% on that gain. You then buy the stock back at the higher current price which resets your cost basis higher............when you do sell again, your CG will be lower than it would have been and perhaps you can tax gain harvest again.
Topic Author
viewer0
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Re: Long Term Capital Gains rate

Post by viewer0 »

got it. So, it is applicable to 0% CG bracket. Thankfully I am not in that category or smart enough to be in that category!
DIYtrixie
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Re: Long Term Capital Gains rate

Post by DIYtrixie »

Skeeter1 wrote: Sat Oct 24, 2020 8:39 am If this loads properly, this is a simple but interesting way to looking at CG.
https://engaging-data.com/tax-brackets/
Wow -- what a great visual! (And a wonderful rabbit hole of a site, for visualizing data of all kinds.) Thanks for the link!
spreadsheetguy
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Re: Long Term Capital Gains rate

Post by spreadsheetguy »

I was always confused by capital gains, but this thread has helped, especially the diagram.
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