The rates for 2023 are actually $44,675 (single) - but yes, you have the basic idea correct.
Remember that you are only taxed on the gains, not the original contribution ( or “basis”).
An example: lets suppose over several decades you contribute $350k into a taxable investment account in index funds. The market has been roughly following its long term average, and that $350k has grown to $1 million. You have a $350k basis and $650k in long term capitol gains.
Ignoring all other deductions and credits, in 2023 you could withdraw $44,675 + $15,636 =$60,311 and pay $0 in taxes. Technically you would owe 0% on $44,675 (0.00 * 44,675 = $0) while the $15,636 was not taxed at all.
You can further boost this amount by withdrawing funds from a Roth and taking advantage of other deductions and credits.
This is why many retirees pay nothing in federal taxes. Our taxation system is heavily weighted towards taxing earned income, and very favorable towards investment gains. Note also that SS and pensions can be taxed like earned income
That is shocking information! It seems like Long term gain rules have changed. Last I knew I thought they were 7 or 10 years. Now it seems it's 1 (!). A lot has changed since I looked at the laws. Even though I might benefit from this - I have one question about your statement. Are you saying income does not count against the capital gains? So for example, If you withdrew $44,000 LT gains and made $100,000 a year at a job, you still won't be taxed on the capital gains? . One could look at this like a CD with 15% return (as long as you withdraw investments under $44,000).
Long term has been over one year for many years now.
As for your question, no, that's not how it works. The $100K would be taxed at ordinary income tax rates, then the $44K would be taxed at 15% because the capital gains are "stacked" on top of the $100K of job income.
Also, as an aside, I think
@nereo was trying to account for the standard deduction when they were adding the $15,636 number. While correct in principle (i.e. the standard deduction amount is subtracted from gross income to get taxable income), the standard deduction for a single person under 65 and not blind in 2023 is $13,850.
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Also, while it is true that you won't pay federal income tax, there are other tax effects that should be considered:
1. Capital gains add to AGI, and therefore affect things like ACA subsidies, eligibility for most tax credits, and FAFSA EFC/SAI.
2. Most states tax capital gains as ordinary income, so you'd likely owe state income taxes on the amount of the capital gain.
3. Short term gains (one year or less), are not eligible for the 0% bracket; they're taxed as ordinary income.