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Regarding Capital Gains Tax in U.S.:

I am retired, and my only income is what I think is called "passive", e.g. RMDs, dividends, interest, and realized capital gains. My understanding is that if my ("regular"? "ordinary"?) income is under about $40K, I can then take long-term capital gains at a zero tax rate. Is that generally correct?

Some notes:

  • With regard to my brokerage accounts, pretty much all of my dividends and interest are reinvested.

  • If I understand correctly, absent any realized capital gains (long or short), my ("regular"? "ordinary"?) income then consists of my RMDs, interest generated from savings accounts, and any/all "qualified" dividends even if automatically reinvested.

  • My question, for simplicity's sake, ignores any loss harvesting in the same year.

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    Reinvested earnings of any kind are taxed the same as if you took them in cash. Interest and unqualified dividends are taxed as ordinary income, but qualified dividends and long-term cap gains are taxed at lower rates. If your ordinary income less deduction is less than $40,400 for single or MFS in 2021 (different for other statuses or other years) the LTCG+QD that fit between that amount and the breakpoint is tax-free; above that it is 15% and above a higher limit 20%. Dupe money.stackexchange.com/questions/146080 and money.stackexchange.com/questions/110332 Nov 7, 2021 at 1:36
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    Added: also if you're over RMD age you probably should be getting Social Security; remember that if you have significant other income in addition to SS it may make part of your SS taxable -- and if so, it is ordinary income in the tax calculation. Nov 7, 2021 at 1:46
  • Note: I'm not "RMD age" yet...RMDs mentioned are from an inheritance IRA. But good thought to mention. And your response helped me also find this link: kiplinger.com/taxes/tax-planning/602187/…. Which essentially concurs with you explanation, so thanks for that...
    – mblatz01
    Nov 8, 2021 at 14:22

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