long term capital gain

[NotEasy]

I have never really spent time on finding out how they calculate the tax on long term capital gain because the tax program would do it automatically...until tonight.

I have a client whose income is about $45,000 last year and all of it is long term capital gain. After the tax return was done, I was surprised that the tax due is only a few hundred dollars. I could not believe it. So tonight, the first time in my life, I tried to study the worksheet to see how the program came up with the tax on long term capital gain. To my surprise, I found that the first $41,500 long time capital gain of a single person is tax free (based on the fact that he had no other income). I know they have lowered the long term capital gain tax a few years ago...but is it really this low? I just find it hard to believe. Please help me to believe that it is true.

[Burke]

Well, the LTCG rules changed for 2008 to 0% rate for those in 10 - 15% tax brackets. That is what probably happened in your case.

[David1980]

It certainly is scary the first time you do a return with taxable income and see a blank line for tax. "Did it break!?" Yes, it's correct 0% capital gains are awesome.

[solomon]

Yes. The first 32,550 is at 0% for a single person. In your case for a single person with standard deduction and an exemption, only 3,500 would be taxed at capital gain rate of 15%.

[joanmcq]

My supervisor at work just had one of these. Spent a long time trying to find the glitch; how could taxable income of $7888 have zero tax? In this case it was qualified dividends which even I didn't know fell under the cap gains treatment.

So someone with enough assets to have 45K in qualified dividends and no other income pays zero tax. Kinda makes you sick doesn't it?

[RitaB]

Not me

So someone with enough assets to have 45K in qualified dividends and no other income pays zero tax. Kinda makes you sick doesn't it?

Just makes me want to invest long term.

You know - since God has not called me to preach, I can't deduct all my housing and utilities costs. Nor has my family requested that I quit this job so we can qualify for EIC and food stamps. Also, I already have a house, so I don't luck out like my friends and get $8000 credit because I was in the right place at the right time.

I guess it's all relative.

Like this guy that just walked in here and finally figured out that he gets more "back" (even though he didn't pay any "in") if he reports his tips from working at the hunting lodge. Amazing that he never had any tips before this year. Been working there seven or eight years now but got some tips in 2008... Guess times were better at the hunting lodge.

[Questionguy101]

It certainly is scary the first time you do a return with taxable income and see a blank line for tax. "Did it break!?" Yes, it's correct 0% capital gains are awesome.

I agree. And what is even more scary in the OP's case is that the taxable income that he was looking at is over $40,000. And then the next line is a '0'.

[joanmcq]

Investing long term is one thing. This is one of those loopholes Warren Buffet has been commenting on; why the wealthy actually pay less than us working stiffs.

Oh well, the more complicated the code, the longer I stay employed.