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How do I get a 0 tax rate if I have to include the capital gain when figuring taxable income?

Forum|Forum|6 years ago
May 31, 2019
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I have read that there is 0 tax on long-term capital gains if the "taxable income" on form 1040 line 43 is at the 10% or 15% level. It seems that that is true for me only if the capital gain is NOT inserted on line 13 of Form 1040 or, if inserted, somehow gets negated later (which I do not see). So, how do I get a 0 tax rate if I have to include the capital gain? If included, it jumps the "taxable income" way high and will incur tax - so how will it be a zero tax rate? For argument sake, let's say the total income (married - joint) is $10,000 and the capital gain is $150,000. Using standard deduction. Any info to help me understand would be appreciated. Thank you.

Best answer by SweetieJean

As of 2015, there are three rates for long-term capital gain:

Within the range where ordinary income is taxed at 10% or 15%, the rate for long-term capital gain is 0%.
In the range where ordinary income is taxed at 25% to 35%, the rate for long-term gain is 15%.
Above that level — that is, where ordinary income is taxed at 39.6%, the rate for long-term gain is 20%.

However, in order to determine which of the three ranges you fall into, you must look at your TOTAL income. For your example, that would be $10,000 + 150,000 = 160,000.

S

SweetieJeanAnswer

As of 2015, there are three rates for long-term capital gain:

Within the range where ordinary income is taxed at 10% or 15%, the rate for long-term capital gain is 0%.
In the range where ordinary income is taxed at 25% to 35%, the rate for long-term gain is 15%.
Above that level — that is, where ordinary income is taxed at 39.6%, the rate for long-term gain is 20%.

However, in order to determine which of the three ranges you fall into, you must look at your TOTAL income. For your example, that would be $10,000 + 150,000 = 160,000.

Hal_Al

For your example [total income (married - joint) is $10,000 and the capital gain is $150,000], approx $10,000 of the capital gain and the $10,000 of other income would not be taxed at all (wiped out by your exemptions and standard deduction), $73,800 would be taxed at 0% and the rest taxed at 15%.
As previously instructed, see the Qualifying Dividends & Capital Gain worksheet for actual tax calculations (<a rel="nofollow" target="_blank" href="https://apps.irs.gov/app/vita/content/globalmedia/capital_gain_tax_worksheet_1040i.pdf">https://apps.irs.gov/app/vita/content/globalmedia/capital_gain_tax_worksheet_1040i.pdf</a>). You do not just look up the line 43 amount (or any other amount) in the tax tables.

*It's unlikely, but you might have a schedule D worksheet instead of a Qualifying Dividends & Capital Gain worksheet.

Critter

You are confusing terms ... taxable income and the Cap Gain tax rate are not the same thing. You will have taxable income after adjustments, deductions and exemptions. How the tax is being calculated is your question......

Switch to the FORMS mode when you are completely finished with your federal return and review the Qualifying Dividends & Cap Gain worksheet to see how the tax is being calculated. Look for the lines for the 0%, 15% & 20% tax rates.

L

leirp

Your answer is helpful. I ran the pro forma TurboTax return you suggest with a 1099-B showing a long-tern capital gain and Taxable income on line 43 less than the $75,300 taxable capital gain threshhold. The Cap Gain worksheet shows zero tax on the gain on the 1099-B. But the Turbotax "tax meter"with and without a gain on the 1099-B raises the federal tax due by 6.5% of the gain amount. Am I missing something?