Calculate income for long term capital gains

How do you estimate your income for long term capital gains?

Do short term capital gains count in this income for long term capital gains?

Do short term capital losses reduce income for long term capital gains?

• Are you just trying to understand which long-term capital gains rate will apply to you? – Hart CO Dec 27 '19 at 16:53
• Yes, I'm trying to estimate my income to see if I would be at the 0% rate this year. – Berry Blue Dec 27 '19 at 21:02
• @HartCO since the long-term capital gains rate is based on a separate tier structure than income tax, I see this as in interesting question. A rewritten version of OP's question is: since LT GC are taxed at a different rate than is income, dividends, interest and ST CG, what number is used to calculate which LT GC tax bracket that you fall in? – RonJohn Dec 27 '19 at 21:59
• @BerryBlue do you have a lot of LT CGs? (Also, ST cap gains are treated as normal income just like what's on your W-2. ST cap losses are subtracted from that number.) – RonJohn Dec 27 '19 at 22:02
• Compare money.stackexchange.com/questions/73415/… and money.stackexchange.com/questions/28968/… -- although brackets move (slightly) every year and TCJA changed ordinary rates changed effective last year (2018) – dave_thompson_085 Dec 29 '19 at 8:23

The long-term rates are based on your taxable income. This includes your net capital gain (or allowed capital losses) from both short and long-term positions. First you'll calculate your net capital gain/loss for short-term and long-term separately, then you add them together to see how much they contribute to your taxable income (here losses on one would offset gains on the other).

Since the tax rates are based on taxable income, you'll have to estimate all your other income and adjustments/deductions to know the rate you'll pay.

An example, if you had \$50,000 in long-term gain and \$5,000 in short-term losses, you'd have \$45,000 added to your taxable income. If you were single and that was your only income for the year the standard deduction would bring the amount below the 0% long-term threshold so you'd have no capital gains tax due.

Alternatively, if your taxable income before capital gains had you at the top end of the 12% tax bracket and you had \$5,000 in short-term gain and \$5,000 in long-term gain you'd pay 22% on the short-term gain and 15% on the long-term (the brackets don't perfectly align between ordinary income and long-term capital gains so this example is not perfect, but the point is that the total taxable income determines the rate).

• So what if you have \$30k in additional ordinary income for this example? Where do the taxes on long-term capital gains start? Are the calculating first or do the start at the top of ordinary income? – Berry Blue Dec 28 '19 at 3:17
• @BerryBlue The rate is based on your taxable income, so if you just have ordinary income and capital gains you'd sum those up and then apply any adjustments and the standard deduction or itemized deductions. The rates are progressive, so if your ordinary income puts you in the 0% capital gains range but your capital gains push you over, only a portion of the capital gains will be taxed at 15%. – Hart CO Dec 28 '19 at 5:14