The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: Case on January 20, 2020, 03:34:52 PM
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Sort of a follow up to my last post, how does capital gains tax rate work?
What I mean is, for a couple filing jointly, the cut off point btw 0 and 15% is $80,000. Does that mean the first $80,000 is taxed at 0% and everything above that is 15% (assume I never make it to the 20% bracket)? Or is it that it looks only at your total income (capital gains + everything else) and then determines the tax?
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It works the same as regular tax brackets. The first $80k (cool that it's a nice round number in 2020) is taxed at 0% and then amounts above that up to $496,600 is taxed at 15%. Note that other sources of income (earned income, tax deferred withdrawals, pensions, some social security, dividends, short term gains) also count, and the standard deduction (and other deductions) reduces gross income to arrive at taxable income. So say you had $94,800 of other income then you could only realize $10k of long term capital gains at 0% becuase $104,800 - $24,800 standard deduction = $80k.
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It works the same as regular tax brackets. The first $80k (cool that it's a nice round number in 2020) is taxed at 0% and then amounts above that up to $496,600 is taxed at 15%. Note that other sources of income (earned income, tax deferred withdrawals, pensions, some social security, dividends, short term gains) also count, and the standard deduction (and other deductions) reduces gross income to arrive at taxable income. So say you had $94,800 of other income then you could only realize $10k of long term capital gains at 0% becuase $104,800 - $24,800 standard deduction = $80k.
Thanks for the explanation.