Long term capital gains tax question

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bargainhuntingking
Posts: 232
Joined: Wed May 14, 2008 3:48 am

Long term capital gains tax question

Post by bargainhuntingking »

Let say I've been saving a ton in index funds in my taxable account for decades and I want to cash out some of my long term capital gains. Let also say that I don't want to pay taxes on any of my gains, so I quit working for 1 calendar year, therefore I have no reportable income.

Since my income for that year is now zero, if I cash out some of my long term capital gains on Jan. 1st of that year with plans to live off of those gains, doesn't that mean that I will pay no long term capital gains tax, even if it's a large amount of money?
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cheese_breath
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Re: Long term capital gains tax question

Post by cheese_breath »

No. Your income is not zero. Your capital gains are included in your adjusted gross income, but the long term gains are excluded from taxation if you are in the 10 or 15 percent bracket.
The surest way to know the future is when it becomes the past.
DSInvestor
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Re: Long term capital gains tax question

Post by DSInvestor »

Long term capital gains are not excluded from taxation if you are in the 10% or 15% tax brackets. The long term capital gains (LTCG) are income and they are taxable. The 0% tax rate for the portion of the LTCG that falls in the 10% or 15% tax brackets. The portion of LTCG that falls in the 25% brackets or higher are taxed at 15%.

While you may not have any job income, you will have income in the form of dividends and capital gains. Do you have any capital loss carryovers?

I suggest running some scenarios with tax software or tax calculators like Taxcaster.
Taxcaster: http://turbotax.intuit.com/tax-tools/ca ... taxcaster/

examples for single filer age 50 taking std deduction:
10K Dividends, 30K LTCG, AGI=40K, Taxable Income= 30,250. Fed Tax = $0
10K Dividends, 40K LTCG, AGI=50K, Taxable Income= 40,250. Fed Tax = $735
10K Dividends, 50K LTCG, AGI=50K, Taxable Income= 50,250. Fed Tax = $2,235
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cheese_breath
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Re: Long term capital gains tax question

Post by cheese_breath »

DSInvestor wrote:Long term capital gains are not excluded from taxation if you are in the 10% or 15% tax brackets. The long term capital gains (LTCG) are income and they are taxable. The 0% tax rate for the portion of the LTCG that falls in the 10% or 15% tax brackets. The portion of LTCG that falls in the 25% brackets or higher are taxed at 15%.
I think we're basically saying the same thing. It's an issue of semantics. But you may be more in line with the IRS wording when you say 0% tax rate. I'm guessing. I haven't looked up the exact wording.
The surest way to know the future is when it becomes the past.
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BruceM
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Re: Long term capital gains tax question

Post by BruceM »

In taxable accounts, long term capital gains and qualifying dividends are now Federally taxed at the 0% rate for those married filing jointly whose taxable income (line 43 of the 2012 form 1040), which will include the capital gains and qualifying dividends, is less than $72,500 for 2013 (the top of the 15% bracket). Look at your last tax return and you should be able to estimate this.

Note, this also assumes that you do not have any past year's capital loss carry-forwards. If you do, then these will have to be used first in offsetting capital gains.

BruceM
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bargainhuntingking
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Joined: Wed May 14, 2008 3:48 am

Re: Long term capital gains tax question

Post by bargainhuntingking »

Thank you all for your responses!
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