Long-term capital gains tax rate

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mbecker03
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Long-term capital gains tax rate

Post by mbecker03 » Wed Jan 29, 2014 6:46 am

I've had trouble finding a definitive answer to this question and would appreciate being pointed in the direction of a reference to verify it one way or the other.

My question is whether long-term capital gains taxes are calculated progressively as is ordinary income. As a simple example, say that before any capital gains I am in the 15% tax bracket but am $500 from the top. If I then add $1000 of long-term capital gains, is it true that $500 of that is taxed at 0% and $500 is taxed at 15% (all else being equal, ignoring state taxes)? Or is the entire $1000 taxed at 15%?

Thank you for the help.
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YDNAL
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Re: Long-term capital gains tax rate

Post by YDNAL » Wed Jan 29, 2014 6:57 am

mbecker03 wrote:My question is whether long-term capital gains taxes are calculated progressively as is ordinary income.
Have you ever used Turbo Tax?
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plats
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Re: Long-term capital gains tax rate

Post by plats » Wed Jan 29, 2014 7:05 am

$500 of that is taxed at 0% and $500 is taxed at 15%.

seamonkey
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Re: Long-term capital gains tax rate

Post by seamonkey » Wed Jan 29, 2014 7:12 am

This has the answer to your question.

http://apps.irs.gov/app/vita/content/gl ... _1040i.pdf

It's not completely scaleable, since if you have a lot of investment income, you'll have to fill out Form 8960 for the new Net Investment Income Tax. It's still in draft form for 2013.

http://www.irs.gov/pub/irs-dft/i8960--dft.pdf

Topic Author
mbecker03
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Re: Long-term capital gains tax rate

Post by mbecker03 » Wed Jan 29, 2014 7:32 am

YDNAL wrote:
mbecker03 wrote:My question is whether long-term capital gains taxes are calculated progressively as is ordinary income.
Have you ever used Turbo Tax?
Good suggestion. Using the taxcaster (https://turbotax.intuit.com/tax-tools/c ... taxcaster/) confirms that it is indeed progressive, with $500 taxed at 0% and $500 taxed at 15%. Thanks for the tip.
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rkhusky
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Re: Long-term capital gains tax rate

Post by rkhusky » Wed Jan 29, 2014 8:00 am

And your marginal tax rate is 30% for the next $500 of ordinary income. And you would save 30% if you were able to reduce your ordinary income by $500 through contributing to a tax deferred account.
Last edited by rkhusky on Wed Jan 29, 2014 12:45 pm, edited 1 time in total.

sscritic
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Re: Long-term capital gains tax rate

Post by sscritic » Wed Jan 29, 2014 8:12 am

rkhusky wrote:And your marginal tax rate is 30% for the next $500 of income. And you would save 30% if you were able to reduce your income by $500 through contributing to a tax deferred account.
Not if that income is more long-term cap gains. The type of income matters. The word income without a modifier is ill-defined in the context of taxes. What if the next $500 (or the $500 removed from income) were interest from a tax-free bond?

rkhusky
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Re: Long-term capital gains tax rate

Post by rkhusky » Wed Jan 29, 2014 12:46 pm

sscritic wrote:
rkhusky wrote:And your marginal tax rate is 30% for the next $500 of income. And you would save 30% if you were able to reduce your income by $500 through contributing to a tax deferred account.
Not if that income is more long-term cap gains. The type of income matters. The word income without a modifier is ill-defined in the context of taxes. What if the next $500 (or the $500 removed from income) were interest from a tax-free bond?
Yes. Changed above to ordinary income.

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