YouBet said:
iamtheglove said:
YouBet said:
Related...was not aware that there is a 0% capital gains tax rate if you qualify. For next year, if you make less than $89K (married filing jointly) then you pay nothing on capital gains. So if you are low income or retired you can score here.
Huh.
But capital gains amounts are tacked onto your taxable income for purpose of calculating capital gains taxes, I believe. So if you have $80k in taxable income and $20k in capital gains, $9k in capital gains is taxed at 0% with the remaining $11k at the 15% capital gains bracket. (Editing my post to clarify the above is for long term capital gains)
Nope. Long term gains are capital assets you hold over one year and the profits (the gain) is taxed at 0, 15, 20 based on income brackets. Unless you are making an assload of money you are most likely paying 15% since the bracket for that range goes from roughly $40K to $500K depending on your marriage status.
If you sell an investment before one year of owning it any gains will be added to your income and you are taxed at your income rate.
Yes, I know what long term capital gains are. I actually think we may be saying the same thing. My only real point is that your capital gains taxes aren't always unilaterally one rate. A portion can be taxed at 0%,15% and 20%. And depending on your taxable income, there is an additional 3.8% that can be tacked onto the 20% long term capital gains rate.
The info below is from kitces.com which does a better job of describing the concept than I have (note this is from 2019 so the rate break points may have changed):
"Unfortunately, the process of managing long-term capital gains and ordinary income tax brackets is messier when there is a combination of
each which in practice is common, as most taxpayers that have capital gains have at least
some ordinary income as well. Because once there is some of each type of income, it's necessary to figure out the
order to stack one on top of the other.
Historically, the fact that ordinary income came first, and long-term capital gains stacked on top, was a "good" thing and always produced the most favorable result. As until the advent of the 0% capital gains tax bracket, it was better to get the lowest ordinary income tax brackets first and then stack a "flat" 15% capital gains tax on top, than having long-term capital gains come first and then stack ordinary income at ever-increasing tax brackets on top.
In the current tax environment, though, the fact that ordinary income stacks first has a different effect: it
crowds out the available 0% long-term capital gains tax bracket. As to the extent that ordinary income fills the bottom two tax brackets first, there literally isn't as much room
left to claim 0% long-term capital gains tax rates, before the capital gains get pushed up into the 15% tax bracket.
In practice, though, the rules for stacking ordinary income and long-term capital gains are relatively straightforward: ordinary income first, long-term capital gains (and qualified dividends) come second and stack on top. And any available deductions are applied against ordinary income first.
Notably, though, long-term capital gains rates
are still
graduated tax rates, akin to the ordinary income tax system. Which means just landing
in the 0% long-term capital gains tax bracket doesn't give the opportunity for "unlimited" long-term capital gains at 0%. As
while the tax rate may be 0%, capital gains are still income, and would eventually push the individual out of the 0% bracket and into the higher brackets.
The end result is that, just like the ordinary income tax system, long-term capital gains will typically end out being taxed at a blend of multiple tax brackets. Though at the margin,
planning for the next dollar of income or deductions will still be based on the current marginal tax bracket (for ordinary income or long-term capital gains)."
