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Limit on capital gains amount ?
Old 07-19-2015, 05:00 PM   #1
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Limit on capital gains amount ?

So if a senior only has about $25,000 in SS income and little/no dividends, then their long term capital gain rate is 0%, correct ?

Is there any limit on the amount of gains ? Doesn't seem like there is.

So if a person had $100,000+ in long term stock gains, and below $37,450 in ordinary income, then there'd be zero taxes due on the long term gain.

Thanks for any comments/confirmations.

Taxes on Income and Capital Gains for 2015
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Old 07-19-2015, 05:22 PM   #2
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Are you counting SS as ordinary income? Or is ordinary income interest and what not.
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Old 07-19-2015, 05:28 PM   #3
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I don't think that's correct. I think the $100K in capital gains will count as income.

Then it's a question of what the tax rate on the income will be.

This article is helpful:

Capital gains: At what rate will your long-term sales be taxed? - MarketWatch
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Old 07-19-2015, 05:52 PM   #4
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Of course there is an income limit to remain in the 15% marginal income tax bracket. And capital gains are income. They get put right there on the first page of Form 1040.

One can explore your question others like it by using the free tax calculator Taxcaster. It is trivial to use and find on the internet (if you have a computer attached to the internet).
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Old 07-19-2015, 06:02 PM   #5
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I think you will find that 100k in capital gains will make 85% of your SS taxable. Then one would have to look if you exceed the 15% bracket. Even if the cap gains are below the 15% and not taxable, they can cause your SS to be taxable
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Old 07-19-2015, 06:06 PM   #6
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Nope,

the LTCG between the SS and the limit of 15% rate (~36,900 for single) would be taxes at 0% , any above that would be taxed at 15%.

I'm considering that the irs will count the non-taxable SS amount just like ordinary income for total income (but not taxable) towards the $36,900 limit
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Old 07-19-2015, 07:02 PM   #7
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Thanks. Ran Taxcaster. So yes, the 100k LTCG counts as "income" towards determining tax bracket.

Below is screenshot of Taxcaster. So if I increase LTCG by $1,000, the tax due goes up by $150, so that's the now expected tax bracket.

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Old 07-19-2015, 07:12 PM   #8
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Quote:
Originally Posted by Delawaredave5 View Post
So if a senior only has about $25,000 in SS income and little/no dividends, then their long term capital gain rate is 0%, correct ?

Is there any limit on the amount of gains ? Doesn't seem like there is.

So if a person had $100,000+ in long term stock gains, and below $37,450 in ordinary income, then there'd be zero taxes due on the long term gain.

Thanks for any comments/confirmations.

Taxes on Income and Capital Gains for 2015
Capital gains add to your income and you want taxable income (including capital gains) to be below $37,450 so adding to that $7,850 for the standard deduction and $4,000 of personal exemptions, you can have up to $49,300 of income.

But it gets a bit complicated because a portion of SS is included and it increases as your total income increases.

You can test it with Taxcaster, but if the taxpayer is 65 and has $21k of SS I come up with about $35,013 of LTCG to get to the top of the 15% tax bracket. At that point the total tax is $244.

Add $100 more of LTCG and the tax increases to $279, so the incremental tax in that incremental $100 of LTCG is $35, or 35%. Ouch!

Same but with $100k of LTCG and the tax increases to $10,866.
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Old 07-19-2015, 10:49 PM   #9
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Quote:
Originally Posted by Delawaredave5 View Post
Thanks. Ran Taxcaster. So yes, the 100k LTCG counts as "income" towards determining tax bracket.

Below is screenshot of Taxcaster. So if I increase LTCG by $1,000, the tax due goes up by $150, so that's the now expected tax bracket.

That's the now expected tax bracket for LTCG. An interesting exercise would be to increase the ordinary income (instead of LTCG) by $1000. You should see the tax increase by 30% ($300) even though the ordinary income is being taxed at 15%.

The Schwab table you linked could have been made clearer (perhaps)by labeling the middle column
as taxable income which might have suggested better that LTCG should be included also. It is implied
because it talks about income tax brackets but is not crystal clear.
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Old 07-20-2015, 08:35 AM   #10
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If you want to see exactly how that works, study the Qualified Dividends and Capital Gains Tax Worksheet.
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Old 07-20-2015, 11:28 AM   #11
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In order to have $100K of LT cap gains, then one probably had to sell more than $100K of the investment. It is rare for an investment sold for capital gains to have a basis of zero.
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Old 07-20-2015, 12:12 PM   #12
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In order to have $100K of LT cap gains, then one probably had to sell more than $100K of the investment. It is rare for an investment sold for capital gains to have a basis of zero.
HUh?? That basis should wash out in the calculations of capital gains. If my basis is $20K and I sell $120K worth of stock, my capital gain is the $100K
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Old 07-20-2015, 12:30 PM   #13
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HUh?? That basis should wash out in the calculations of capital gains. If my basis is $20K and I sell $120K worth of stock, my capital gain is the $100K
You made my point exactly. Thanks! You sold more than $100K of stock in order to have $100K of cap gains.
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Old 07-20-2015, 12:58 PM   #14
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You made my point exactly. Thanks! You sold more than $100K of stock in order to have $100K of cap gains.
LOL!... The OP and most if not all the other posters were talking about 100k of capital gains up until your post. The taxcaster images (never used it myself) were indicate 100k of LTCG... not specifically noting the value of the transactions.
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