My understanding is long term capital gains less than $44,000 does not incur federal tax - but when I look at past filed tax forms, it seems to be fold it into adjusted gross income on 1040.
Shouldn't they be eliminated it from the gross income? I can't see how they are calculating the actual tax owed.
It doesn't help me to know the tax brackets for different investments if I can't even understand how this is being applied on the tax form. I think I need the idiot's guide to 1040. It all seems hidden behind the curtain like the wizard of oz.
Long term gains are taxed at 0% *if* your other income plus the capital gains minus your standard deduction is under the top of the 0% bracket.
LTCG are included in AGI and taxable income, because they are taxed - it's just that the tax rate is 0%. If you look at the 1040 instructions for how to calculate the tax on line 16, you'll see that if you have capital gains or qualified dividends to use a worksheet to calculate your tax. The worksheet is a full page and rather complicated, but it basically applies ordinary brackets to ordinary income and capital gains brackets to capital gains. (You can see a version of the worksheet on page 36 of the 2022 instructions at
https://www.irs.gov/pub/irs-pdf/i1040gi.pdf. There's a similar but slightly different on in the Schedule D instructions I think.)
If you're using tax software, it's filling out the worksheet for you behind the scenes. Most tax software probably has a way to look at and/or print the worksheet if you want to dive into the gory details.
