Author Topic: simple question re zero bracket for long term capital gains  (Read 3439 times)

TreeTired

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Apologies in advance for me not being able to find the simple answer to this simple question!! (Why is that? It is such an obvious question)

If my wife and I have taxable income less than $89,250 we will be in the zero tax bracket for LT capital gains.
So if our taxable income consists of $60,000 ordinary income and $29,000 in long term capital gains we will pay income tax on the $60k but no additional tax for the $29k in LTCG because our total taxable income of $89,000 is below the $89,250 limit.
  Our tax bill would be the same whether the LT gains were $15k, $25k, or $29k.

But what happens if our LTCG are $30,000?  In this case our taxable income is now $90,000, just barely over the zero bracket limit but puts us into the 15% bracket for long term capital gains.

My question is, would this subject our entire $30,000 LTCG to a 15% income tax?  Is there a cliff, or do I only pay 15% on the amount exceeding the $89,250 limit?

I'm sure this question has been asked and answered 1000 times but I can't seem to find it and I am getting a headache!

All this prompted by the IRS letting me know I left out several stock transactions on my 2022 return (yes, I simply misread my broker's report and left out several trades!)  so the net result is more long term capital gain income and I am trying to figure out how that affects my taxes owed.  Thank you!

ScreamingHeadGuy

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Re: simple question re zero bracket for long term capital gains
« Reply #1 on: July 02, 2024, 04:43:55 PM »
Only on the amount of LTCG over $89,250.

terran

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Re: simple question re zero bracket for long term capital gains
« Reply #2 on: July 02, 2024, 07:09:33 PM »
Check out the Qualified Dividends and Capital Gains Tax worksheet in the Form 1040 instructions. That's where this calculation happens.

secondcor521

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Re: simple question re zero bracket for long term capital gains
« Reply #3 on: July 03, 2024, 12:54:29 AM »
Long story short, capital gains brackets work like ordinary income brackets; as already noted only the amount over the applicable bracket number is taxed at the 15% rate.

This visualization may help:  https://engaging-data.com/tax-brackets/?fs=1&reg=60000&cg=29000&yr=2022

The way the OP is written, it's not clear if they're accounting for the standard deduction or not.  OP, after totaling your ordinary income and capital gain income, you get to subtract the standard deduction (which for 2022 MFJ apparently was $25,900) before you apply the ordinary tax brackets and capital gains brackets.

Also, note that in the OP, they're referencing their 2022 tax return but looking at 2023 tax bracket numbers.  $89,250 is the beginning of the 15% bracket for 2023.  For 2022, the applicable number is $83,350.
« Last Edit: July 03, 2024, 01:02:40 AM by secondcor521 »