Capital Gains and Losses
Questions and comments about tax rules for buying and selling stocks, mutual funds, real estate and other assets.
Capital Gains Effect on Earnerd Income Rates
Posted by: len3hardy, January 26, 2017 04:42PM
Being semi-retired half my income is from stock capital gains (I'm in the 15% cap gains category)

My question is does capital gains affect the progressive tax brackets used to assess taxes due on earned income?

I assume it doesn't. I assume capital gains is deducted from gross income and taxed at 15%, then the remained is taxed according to the progressive tax rates (regardless of how much capital gains you have); but I am not sure.

Thanks
Len

Re: Capital Gains Effect on Earnerd Income Rates
Posted by: caesark, January 26, 2017 05:51PM
You are correct.

Re: Capital Gains Effect on Earnerd Income Rates
Posted by: triad, January 26, 2017 07:03PM
Actually, imho, you have it backwards.

1st, the ordinary income (which includes "earned income") is taxed.

2nd, the Capital Gains tax worksheet will determine how much room is left (if any) in the 10-15% tax brackets. If there is room, you get a LTCG rate of 0% for the part that fits. Any LTCG that spills over into the 25% tax rate gets the 15% rate.

Re: Capital Gains Effect on Earnerd Income Rates
Posted by: Sven, January 26, 2017 09:54PM
I hate to sound like I am pushing Turbo Tax, but the easiest way to see with your own eyes how things work using the fact pattern the poster put up is to play with a dummy return and run different ordinary income and capital gains/qualified dividends scenarios through the program. After each modification if you look at the CG worksheet and see how the tax gets calculated, sooner or later you will get the picture.

There are also cute little multi-color bar charts out there that stack different types of income in an attempt to let you see what's what. I think using a program leads to the "aha" moment and it's, frankly, fun.

Re: Capital Gains Effect on Earnerd Income Rates
Posted by: caesark, January 27, 2017 07:22PM
triad,

you misunderstand the question. Read what Len wrote carefully - he is 100% correct. Capital gains have no affect on the tax rate on earned income.

Re: Capital Gains Effect on Earnerd Income Rates
Posted by: len3hardy, January 27, 2017 07:27PM
Thanks to all above. Your input has been very helpful

Len

Re: Capital Gains Effect on Earnerd Income Rates
Posted by: len3hardy, January 27, 2017 07:27PM
Thanks to all above. Your input has been very helpful

Len



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