0% LTCG/div tax question

[pb4uski]

In my state, the first $5k of LTCG is exempt from tax and the remainder is taxed like ordinary income. That is why I have state tax even though it is 0% for federal.

 

[scrabbler1]

In my state, which is a conforming state, AGI is carried over from the Federal return to the state. So divs and capital gains are included. Then they make adjustments for items that are not taxable by the state (like interest on US Treasury bonds).

My state (New York) is like this, too. You copy the data as it appears on your federal return then perform adjustments, both upward and downward, to the federal AGI. Upward adjustments include adding back interest from muni bonds issued in other states (i.e. a national muni bond fund). Downward adjustments include subtracting state income/property tax refunds. (I have some of each of these which have roughly offset each other over the years.) Then you get your New York AGI and continue from there, with all dividends and cap gains taxed as ordinary income.

 

[bondi688]

If all your income comes from long term capital gain and dividends from your investments, and the total amounts to 20,000 a year, do you pay no income tax, or do you pay income tax on the $20000 a year?

 

[pb4uski]

0 tax if all $20k of income is LTCG and qualified dividends in 2012. See TurboTax® TaxCaster - Free Tax Calculator - Free Tax Estimator

 

[bondi688]

pb4uski
Thanks for the answer. I looked at some articles just now: if there is no resolution of the fiscal cliff and the new tax rate kicks in in 2013, there is no 10% bracket, the lowest bracket is 15%, and it appears there is no 0% tax on LTCG and dividend anymore come 2013, there is a 10% tax rate on LGCG and dividend, even if your total income is inside the 15% bracket. Am I reading that correctly?

 

[pb4uski]

That sounds right but I haven't researched it. From what i have read/heard, I think it likely that the Bush-era tax cuts will be preserved for lower tax brackets. It is unclear if that will include 0% rate on qualified dividends and capital gain. If 0% is retained, then I have some additional gain harvesting to do in 2013, if not, then I'll focus on Roth conversions instead.