capital gains

[TrustUser]

What is the name of your state?california i have never actually had to pay capital gains tax up to now. my understanding is the following. if i have a long-term gain of 100,000, and the capital tax rate is 10%, then $10,000 is added to my ordinary income for the year. and i then simply compute my income tax the same way, with that $10,000 as a source of income, just like any other source of income. is this correct ?

 

[LdiJ]

What is the name of your state?california i have never actually had to pay capital gains tax up to now. my understanding is the following. if i have a long-term gain of 100,000, and the capital tax rate is 10%, then $10,000 is added to my ordinary income for the year. and i then simply compute my income tax the same way, with that $10,000 as a source of income, just like any other source of income. is this correct ?

No, that is not how it works at all.

The addition to your income is $100,000 not $10,000 but that additional income is taxed at the capital gains tax rate, which is most likely to be 15%, (it could be higher or lower) You would pay $15,000 in TAX plus whatever tax there would be on the rest of your income. That is federal tax. You would also owe state tax on the same income.

 

[TrustUser]

so my normal tax stays the same, with its various layers. and then i add the 15,000 to it ? it would be clearer to me if the 2 incomes were separated. 15% on the capital gains. and then whatever the rest of the income would be. is it generally advantagesous to split the capital gains between 2 years, when possible ?

 

[FlyingRon]

Yes, the regular tax is the same, but the capital gains tax varies based on your total income WHICH INCLUDES the capital gain. So if you have a $100,000 capital gain, even if you had no other income, you're in the 15% long term capital gain bracket.

 

[TrustUser]

thanks guys, i think i understand the ramifications

 

[adjusterjack]

Your regular tax may also increase if your capital gain puts you in a higher tax bracket when added to your regular income. Depends on how much your regular income is, what tax bracket you are already in, and how close you are to the next tax bracket..

 

[TrustUser]

that was the bad news that i didnt want to hear - LOL. the gain will be most of my income

 

[adjusterjack]

Keep in mind that you might have adjustments to the gain. Like costs or expenses for the sale, costs involved in the purchase, improvements you might have made.

Read the IRS publication 550.

https://www.irs.gov/pub/irs-pdf/p550.pdf

 

[TrustUser]

thanks adj, i will still end up with a sizeable gain - but i guess that is infinitely better than a sizeable loss

 

[adjusterjack]

Here's another wrinkle. You might have to pay estimated tax to avoid an under reporting penalty.

Read IRS Publication 505:

2021 Publication 505 (irs.gov)

 

[davew9128]

Your regular tax may also increase if your capital gain puts you in a higher tax bracket when added to your regular income. Depends on how much your regular income is, what tax bracket you are already in, and how close you are to the next tax bracket..

This is completely false.