How is Capital Gains Tax Calculated?
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- เผยแพร่เมื่อ 25 ก.ค. 2024
- Calculating the tax on capital gains is a complicated affair, and this video attempts to break down the process step-by-step, using the Qualified Dividends and Capital Gains Worksheet. Warning: lots of number manipulation here. Of course, these calculations are just about always done by computer, except by geeky masochists like myself.
2023 UPDATE:
Capital Gains Rates MAGI thresholds for 2023:
0%: less than $44,625 (S), $89,250 (MFJ, QSS), $59,750 (HOH)
15%: $44,626 - $492,300 (S), $89,251 - $553,850 (MFJ, QSS), $59,751 - $523,050 (HOH)
20%: over $492,300 (S), $553,850 (MFJ, QSS), $523,050 (HOH)
To make sense of this video, it helps to have watched the original video I made on capital gains. Click here to see it: • What is a Capital Gain...
Additional information and resources:
"Instructions for Form 1040 and 1040SR" (this includes the Qualified Dividends and Capital Gains Worksheet). www.irs.gov/pub/irs-pdf/i1040...
IRS Publication 550: "Investment Income and Expenses": www.irs.gov/pub/irs-pdf/p550.pdf
"2020-2021 Capital Gains Tax Rates--and How to Calculate your Bill" www.nerdwallet.com/article/ta...
The Tax Geek on The Site Formerly Known as Twitter: @taxgeekusa
The Tax Geek on Reddit: www.reddit.com/r/askataxgeek
Intro Music: "Bluesy Vibes" - Doug Maxwell - TH-cam Audio Library
Background and Outro Music: George Street Shuffle, Kevin McLeod, incompetech.com via TH-cam Audio Library
DISCLAIMER: This video is for educational and informational purposes only. It is not intended to render tax advice for individual situations. If you have questions regarding your particular tax situation, please check out the resources below, or consult with a qualified tax professional.
The information in this video is based on tax law and IRS regulations in place when this video was published.
![How to Calculate Taxable Gain from Selling a Rental [Tax Smart Daily 020]](http://i.ytimg.com/vi/VFqIr0GQKSk/mqdefault.jpg)
2023 UPDATE:
Capital Gains Rates MAGI thresholds for 2022:
0%: less than $44,625 (S), $89,250 (MFJ, QSS), $59,750 (HOH)
15%: $41,676 - $492,300 (S), $89,251 - $553,850 (MFJ, QSS), $59,751- $523,050 (HOH)
20%: over $492,300 (S), $553,850 (MFJ, QSS), $523,050 (HOH)
Your video was very helpful in better understanding the confusing shifts from line to line and how they apply to the various long-term capital gain tax rates. Thanks!
So glad I found your site. Clear and concise on how to complete Form 1040 using the CG & Dividends worksheet.
Thanks! Completing a QDCG Worksheet can be tricky, but even if you prepare it with a computer, you should know where the number comes from.
Thank you for the manual computation, very good! Thumbs up here!
Thank you. Well done.
Excellent! Clear and concise.
This video was very helpful. Thank you. However, I am just curious. How did you make the error in the first video? How did you arrive at 886?
I believe what I did was I made a mistake when I looked up "Billy's" income tax from the tax table in the original video. The mistake was minor enough that it didn't fundamentally break the video, so I let it stand and corrected it in this video.
Thanks Tax Geek. Where can i find and download that worksheet? I assume the IRS but I couldn't find it there.
The Qualified Dividends and Capital Gains Worksheet can be found in the instructions for Form 1040: www.irs.gov/pub/irs-pdf/i1040gi.pdf
If a line is $0 and another is say $40,000, and we are asked to enter the smaller of the two, we enter $0, correct? Example, for line 7 in the above case, if line 1 is $0 and line 6 is $40,000, we enter $0 on line 7. Is this right?
I must say a huge THANK YOU for you videos, they are most helpful and confirm and clarify so much when filing taxes.
Yes, you're correct. And thanks for the kind words!
@@TheTaxGeek Most welcome! 🙏🏾
And thanks for confirming my query
Please make a video on how taxes are calculated on Qualified Dividends v.s. ordinary dividends. How much taxes one saves when income(50k) comes from just Qualified dividends rather than w2 income.
Check out this video I've already make on dividends, both ordinary and qualified: th-cam.com/video/l4SNSWqZbmw/w-d-xo.html
Now what if you had a Capital loss? How does that figure into the CGT worksheet?
Capital losses are subtracted from capital gains to determine net capital gains. This calculation is done separately for short- and long-term gains and shows up on Schedule D. If capital losses exceed capital gains, those losses may be used to offset other income with limitations. th-cam.com/video/P4SG6Wg4zV4/w-d-xo.html
I have a couple of questions for the tax geek if you don't mind.
(Q1) Am I right in stating that capital gains tax rate is blended just like ordinary income? Example: are you taxed at 10% on a LT cap gain till it hits the 15% threshold which is taxed at 15%, then once you hit the 20% threshold, you are taxed at 20% on all LT cap gains above that. Is that correct?
You mention at min 6:30 in this video that that the amount of regular income tax + capital gains tax is added together, then it is compared to ordinary tax on all taxable income.
(Q2) What do you mean be ordinary tax on all taxable income. ARe you saying there is double tax? LT cap gains tax is considered taxable income... and it is taxed at 10,15 or 20% correct? It sounds like you are saying that there is an ordinary tax on "all taxable income" in my understanding in how you are stating this is that one would be taxed at ordinary rates AND cap gains rates on the same dollar. (that can't be right??) If that is not the case and I am just misinterpreting your statement, then...
(Q3) Why is it important on the tax form to compare the amount of LT cap gains tax + regular income tax to the amount of ordinary tax on all taxable income? What is the net effect our outcome if it is the same, higher or less? I hope this makes sense..
Thanks in advance!
Let's see if I can clarify the situation.
(Q1). Yes, the capital gains rate can be blended, but it usually isn't. Capital Gains are only subject to two different rates if the capital gains straddles two brackets. For Example, if "Billy" from the video had taxable income of $45,000, including $10,000 capital gains, $5,000 of the capital gains would be taxed as 0%, and the capital gains that exceeded the $40,000 total taxable income threshold would be taxed at 15%. Since Billy's total taxable income was $90,000, the $10,000 capital gain falls entirely within the 15% bracket.
(Q2,3). No, there is no double taxation. The purpose the the QDCGW is to break out and separate capital gains from ordinary income, and break out how much of the capital gains are taxed at what rates. The comparison of the total of the separate capital gains tax on the capital gains and the ordinary income tax on the ordinary income with the ordinary income tax on all income is a "fail safe," just in case there's some strange situation where the ordinary tax on all income might be lower that utilizing capital gains rates. (Don't ask me what situation that might be, I've never encountered one). It also is a useful tool for Tax Professionals like myself for showing our clients how much they're saving by using capital gains rates on appropriate income.
This is not "how is calculated" but only "how to fill out the form."