Timeline for how to compute income on a year when you sell an asset with some capital gain while you have a rolling over capital loss from passed years
Current License: CC BY-SA 4.0
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| Apr 19, 2021 at 16:05 | comment | added | Haluk Karamete | You have really nailed it for me, Thank you very much. I can now understand how bits and pieces fit together. I will have one more subject to discuss and that is a huge deal for me and it has to do with capital losses that have taken place in closed years. But I will open a new question for that. Thank you so much for your help. | |
| Apr 19, 2021 at 13:00 | comment | added | Craig W | @HalukKaramete For your specific example, depreciation recapture is too complicated to try to explain here, you'd need to do a mock income tax return and work through the Schedule D Tax Worksheet. But I'm figuring your total federal tax would be $72,275. California should be an easier calculation because all income is taxed the same; I'm getting a total tax of around $35,000. | |
| Apr 19, 2021 at 12:00 | comment | added | Craig W | @HalukKaramete Note however that there's also the Net Investment Income Tax which would add another ~$14k to your tax bill for the above example. | |
| Apr 19, 2021 at 11:59 | comment | added | Craig W | @HalukKaramete You figure tax on your regular income. Then you go to the long-term capital gains brackets and start filling them up, starting from your regular income. So let's say you had a taxable income (not AGI, like the numbers in my answer) of $600k: $100k salary + $500k capital gain, married filing jointly in 2021. The $100k has a tax of $13,497. Then you go to the capital gains brackets. You start at 15% because of the $100k. The first $401,600 is taxed at 15%, and the remaining $98,400 is taxed at 20%, for a total tax of $79,920. Grand total tax is $93,417. | |
| Apr 19, 2021 at 9:42 | comment | added | Haluk Karamete | Hi Craig, could you shed some light on " they are stacked on top of other income." That's not ordinary income, right? In my case, there are no dividends. I just have salary and dep recapture that's all. --- If we go by an example, say we have 400K capital gain And separately from that, we will have 110K depreciation recapture, and 50K salary income, and nothing else. What percentages do I apply to these numbers when married joint here? There is the IRS and there is the CA side of things. My math is 400K*15% (fed ) + 400K*13.4 ( california ) + 160K ( ordinary income ) * %22 federal + CA ? | |
| Apr 19, 2021 at 9:10 | vote | accept | Haluk Karamete | ||
| Apr 18, 2021 at 17:06 | comment | added | Craig W | @HalukKaramete Qualified dividends and long-term capital gains are eligible for lower tax rates, but they are stacked on top of other income. Regular income (including short-term capital gains) is taxed at the same rate regardless of the amount of qualified divdiends + long-term capital gains, but the reverse is not true because of this stacking effect. For more detail you can refer to the Qualified Dividends and Capital Gain Tax Worksheet. | |
| Apr 18, 2021 at 16:51 | comment | added | Haluk Karamete | Thanks Craig. My confusion is on the tax rates. Looks like there are different tax rates for capital gains vs ordinary income. There is a difference between 100K guy's tax bracket and 600K guy's tax bracket. We can change the numbers to make this more dramatic. When a person has capital gains, does his regular "ordinary" income amount tax is changed? Or is it that that amount ( which deals with only with the ordinary income ) is treated as if there was no capital gain AND the capital gain part ( the 200K in my case ) is taxed against the 200K capital gain tax rate -- regardless of the income? | |
| Apr 18, 2021 at 13:07 | history | answered | Craig W | CC BY-SA 4.0 |