The Money Mustache Community
Learning, Sharing, and Teaching => Investor Alley => Topic started by: mrteacher on October 14, 2015, 09:56:28 AM
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Hi All,
I have a few confusions/questions regarding Capital Gains Tax.
My understanding of the tax is that it applies to any stock, bond, mutual fund, index fund, etc that you sell for a profit. So, if I buy 10 shares of 'Random Company Inc.' at $10 a share and sell 2 of those shares 3 years later when they are worth $14, I'd pay Capital Gains Tax on the gains: $8 ($4 increase in value/share, and I sold 2 shares).
Is that correct?
Now, I believe that if an individual or couple filing jointly is exempt from CG Tax if in the 15% tax bracket. Is this the case? If not, what amount of tax is paid in the Capital Gains?
I just want to make sure I have the correct info in the (hopefully unlikely) event that I would need to tap into my taxable accounts.
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My understanding of the tax is that it applies to any stock, bond, mutual fund, index fund, etc that you sell for a profit. So, if I buy 10 shares of 'Random Company Inc.' at $10 a share and sell 2 of those shares 3 years later when they are worth $14, I'd pay Capital Gains Tax on the gains: $8 ($4 increase in value/share, and I sold 2 shares).
Is that correct?
Yes
Now, I believe that if an individual or couple filing jointly is exempt from CG Tax if in the 15% tax bracket. Is this the case?
That is generally true for long-term capital gains (i.e. securities that you hold for 1+ years or inherited).
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Now, I believe that if an individual or couple filing jointly is exempt from CG Tax if in the 15% tax bracket. Is this the case? If not, what amount of tax is paid in the Capital Gains?
Yes, the long-term capital gains rate is 0% for income in the 10-15% bracket. Do be aware that the capital gains still does count as income for the purpose of any tax credit or deduction that phases out with higher AGI. Also be aware that if you're $1,000 away from the top of the 15% bracket before considering capital gains, only the first $1,000 of capital gains is tax-free. Any capital gains that push you up into the 25% bracket would be taxed at 15%.
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Ok! Thanks for the quick responses, guys, and for confirming what I thought to be true.