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Old 07-23-2013, 04:09 PM   #21
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According to this calculator (specifying 25% federal bracket), the tax would be $15K. Are they wrong?

Capital gains (losses) tax estimator | Calculators by CalcXML
Either they are wrong or you are entering the data incorrectly. Go back and look at my calculation which I know is correct for the situations I described.

If your taxable income is solely LTCG, only the part of it which is above the 15% bracket (over 72.5K) is taxed at 15%.
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Old 07-23-2013, 04:11 PM   #22
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Right, but how is the tax calculated? Is it $100K * .15 or $72.5K * 0 + $27.5K * .15 ?
Playing with a calculator it seems to be the latter.

If I create a couple 50 yo with $90k of LTCG as only income the tax is nil; at LTCG of $190k the tax is $14970 and at LTCG of $1,090k the tax is $152,895 so any amounts gt $90k (which ~ top of 15% bracket after standard deduction and exemptions) are taxed at 15%.
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Old 07-23-2013, 04:13 PM   #23
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One final comment - I find it a little troubling that your tax bill can spike in such a way, if most/all of your income is from capital gains.

Using a convoluted example of all income is from cap gains (married, filing jointly), if your gains are $72500, your tax is $0. If your gains are $72501, your tax is $10875.
No, that doesn't happen. Only $1 is taxed at 15%.

For the most part the IRS code does not have spikes like that. One counter example is the ACA subsidy. If you go $1 over the subsidy limit, the subsidy is gone so that extra $1 could cost you a lot, depending on how much your health insurance coverage costs.
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Old 07-23-2013, 04:15 PM   #24
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Using a convoluted example of all income is from cap gains (married, filing jointly), if your gains are $72500, your tax is $0. If your gains are $72501, your tax is $10875.
This is incorrect - your tax would be 15 cents (15% of $1).
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Old 07-23-2013, 04:16 PM   #25
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Either they are wrong or you are entering the data incorrectly. Go back and look at my calculation which I know is correct for the situations I described.

If your taxable income is solely LTCG, only the part of it which is above the 15% bracket (over 72.5K) is taxed at 15%.
Could you comment on this page, please? The way I read it, you'd be taxed 15% on the entire $100K:

Long-Term Capital Gains: How Much Tax Will I Owe? - TaxACT

Perhaps that's because they're assuming other income (not LTCG) has already put the filer above the 15% bracket?
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Old 07-23-2013, 04:20 PM   #26
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Originally Posted by mrfeh View Post
Could you comment on this page, please? The way I read it, you'd be taxed 15% on the entire $100K:

Long-Term Capital Gains: How Much Tax Will I Owe? - TaxACT

Perhaps that's because they're assuming other income (not LTCG) has already put the filer above the 15% bracket?
Seems poorly written to me.
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Old 07-23-2013, 04:24 PM   #27
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Originally Posted by mrfeh View Post
Could you comment on this page, please? The way I read it, you'd be taxed 15% on the entire $100K:

Long-Term Capital Gains: How Much Tax Will I Owe? - TaxACT

Perhaps that's because they're assuming other income (not LTCG) has already put the filer above the 15% bracket?
The bolded part describes their example. From the article:

Taxpayers whose taxable income is above those limits pay 25% to 35% on their highest taxable dollars of ordinary income. Their capital gains rate is 15%.
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Old 07-23-2013, 04:28 PM   #28
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Thanks again everybody. Good to know there aren't extremely steep steps in taxes due as a result of LTCG.
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Old 07-23-2013, 04:48 PM   #29
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One final comment - I find it a little troubling that your tax bill can spike in such a way, if most/all of your income is from capital gains.

Using a convoluted example of all income is from cap gains (married, filing jointly), if your gains are $72500, your tax is $0. If your gains are $72501, your tax is $10875.
This is not correct. Your intuition on how things should work.....smoothly/continuously...is correct but your concept is not still not fully formed...........the stacked bar chart link above really helps you to conceptualize things. The LTCG above the 15/25% bracket is taxed at 15%
so that is $1 x 15% = 15 cents , basically 0 and the LTCG below that boundary is taxed at 0% which is 0 so now things are nice and smooth w/o step function increases.
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Old 07-23-2013, 04:55 PM   #30
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Could you comment on this page, please? The way I read it, you'd be taxed 15% on the entire $100K:

Long-Term Capital Gains: How Much Tax Will I Owe? - TaxACT

Perhaps that's because they're assuming other income (not LTCG) has already put the filer above the 15% bracket?
You may have overlooked this paragraph which is the key:
If you would be in the 10% or 15% ordinary income tax rate bracket except for the capital gains this year, you may have some capital gains taxed at 0% and some taxed at 15%.
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Old 07-23-2013, 05:49 PM   #31
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Originally Posted by mrfeh View Post
One final comment - I find it a little troubling that your tax bill can spike in such a way, if most/all of your income is from capital gains.

Using a convoluted example of all income is from cap gains (married, filing jointly), if your gains are $72500, your tax is $0. If your gains are $72501, your tax is $10875.

I'm not retired and have always had earned income, so I'm not used to this behavior of the tax code.
This is new to be also. I thought it was 15% plus 5% IL state no matter what. Always something new to learn
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Old 07-23-2013, 06:42 PM   #32
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Thanks again everybody. Good to know there aren't extremely steep steps in taxes due as a result of LTCG.
don't be too sure.........not strictly related to LTCG but income of all sorts.........
there apparently is a cliff re: subsidies under ACA if you earn $1 too much....
Dumb question about ACA vs Income

maybe a better statement is : not too many extremely steep steps
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Old 07-23-2013, 07:11 PM   #33
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I like to run it through this.



Tax Calculator - Estimate Your Income Tax for 2013

think I got this from someone here on a old post anyway fast answer
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Old 07-23-2013, 08:51 PM   #34
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One thing to remember about cap gains is that short-term cap gain distributions (from mutual funds, for example) are treated as ordinary dividends and cannot be offset by short-term or long-term cap losses on Schedule D from your own sales of securities or mutual funds. (If you have overall cap losses, up to $3,000, you can use that to offset ordinary income.) Back in 2010 I had this huge short-term cap gain distribution from a bond mutual fund and it was all subject to income taxes as ordinary income. It nearly doubled my tax bill.
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