This is an odd yet basic question, but I truly cannot get an clarified answer anywhere online...
Would you still need to pay capital gains on a large sale of an asset if you had not other income and were not in the capital gains tax brackets?
In other wrods, does the sale of that asset by itself place you in that income bracket, even without any other income during the year?
Everything I have read online says you only pay CG taxes in these income brackets and then lists annual erned income and the correspnding brackets...
Capital gains brackets are different from ordinary income brackets in the percentages and in the dollar cutoffs for the various brackets. Also, there are only a few capital gains brackets currently. But in general, they work like regular income tax brackets in that only that portion of the income that falls into the bracket is taxed at that bracket.
Also, short term capital gains are taxed as ordinary income and ordinary income tax brackets apply to those. I'm going to assume, therefore, that you're asking about a LTCG in a single year and nothing else.
So if one had no other income and then realized a LTCG, then the LTCG would be taxed according to the capital gains brackets for the filing status (MFJ, single, etc.). After subtracting for either the standard or itemized deductions, then the first $40K or $80K of the remaining amount would fall into the 0% capital gains brackets, then a lot would fall into the 15% bracket, then the 20% bracket is after that.
There is a 3.8% NIIT surcharge at higher amounts of LTCG. This creates effectively a 23.8% bracket even though it technically isn't a tax bracket.
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Now if a person had ordinary income, the standard or itemized deductions apply to that first. If any ordinary income is left, that gets taxed at ordinary income tax bracket rates. If there's LTCG on top of that, then that gets taxed according to capital gains brackets, *but one starts in the LTCG bracket wherever the ordinary income that was taxable ended. So if one earns, say, $500K in ordinary income, they won't get the $40K or $80K at 0% cap gains as above; they'd be well into the 20% bracket at that point (and maybe even the 23.8% bracket) and would have to pay that 2x.y% on their cap gains.
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Clear as mud, right? One visualizer that helps people get it is here:
https://engaging-data.com/tax-brackets/
