Zero % capital gains stunner

[BP.]

This is in the category of too good to be true --- which is why I'm second guessing here. Well, that and my own senility.

MFJ taxpayer has taxable income of $74,000. Of that, $51,000 is a capital gain from one sale. That means his ordinary taxable income is $23,000, which puts him in the 15% bracket. Which means his capital gain is taxed at 0%. Considering economic conditions, I haven't seen a capital gain this year this high, so this is my first really good look at the dramatic impact the 0% rate can have.

I have combed over the Schedule D tax worksheet, and it all looks fine, but as I said --- too good to be true?? Thanks for any input!

Barbara

[DaveO]

I hope it's true. I had one similar to what you describe that resutled in $0 tax on a $50k gain. Even better was the fact that in NE if you have a lower Federal tax than the state tax you pay the Federal tax and attach the Federal return (subject to certain midifcations of course).

In this case it was from the early payoff of an installment sale. Wonderful good timing for this client as they are in the construction trade and had a terrible year otherwise.

[BP.]

Wonderful good timing for this client

You got that right! The client was $#!**!@& himself, and even proposed marriage to me in his irrational exuberance!

[RitaB]

Yep, it's true

http://www.nysscpa.org/cpajournal/2006/1206/essentials/p40.htm

Looks like both your examples are ordinary folks getting a break. Nice.

[Gretel]

Yep, yep. Had the same thing twice and my first inclination was to post to get some confirmation. But then I was pretty sure that this is the way it works out. What a delight for some people!

[BP.]

my first inclination was to post to get some confirmation

Well, go with your gut, Girl, ya know we wanna hear from you!!

[Gretel]

I know what you mean. It always feels so good to have a problem on your desk and you read TTB and someone just received a response to the same problem.

[RitaB]

So nice that people on here

don't have to show off. You know, the atmosphere here is helpful. Even when someone disagrees (or I'm just flat out wrong), nobody has to be a jerk about it. I really appreciate that; I was the kid in high school that just worried all the time that somebody didn't like me... I still kinda do that.

Anyway, nice to have good help at the office! Thanks, friends!

[taxmom34]

i got one too!

and i had to go over and over the schedule D and read tax book, and client had savings of over $700. this was an installment sale too. nice to be able to tell client that some changes were helping him. and it's good next year and 2010 too if i'm reading this right

[BP.]

Thanks, friends!

Thank-you for that wonderful link in your prior post, which I'm gonna print out and study later.

[LindaK]

Am I missing something?

My software calculated 0% for the capital gain up to 65,100 of taxable income, then 15% after that. (MFJ return 99K Taxable Inc, 73K LT Capital Gain) The original poster and others got 0% on the entire LT Capital Gain?

[joanmcq]

It depends on what other income there was. The ones I've seen (like the one I had today) are elderly with boucoup qualified dividends and some capital gains. I mean we are talking people with assets enough to generate 50k + in qualified dividends with a bit of LT cap gains thrown in. And social security. Tax: zero. The standard deduction wiped out the taxable portion of SS (13K) and how much in assets do you have to have to generate 50k in dividends?

Someone thought this out really well. But at first you think your software has a serious bug....

[erchess]

LindaK

I think what you are missing is that the lucky individuals' income other than their long term capital gain leaves them in the 15% bracket where indeed the ltcg rate is 0%. For taxpayers like yours in higher brackets then the lctg rate is higher but it's still a bargain.

[geekgirldany]

It is great. I've had a few S-Corps that had excess distributions. Carried them over to Schedule D personal for them to pay tax... ended up being 0%. But one thing that does happen in this case is that it will raise the income for state. I have one person that would come out great doing this on federal but on state would owe $400 more. Doesn't want to pay the extra money even after me nearly begging to do report the distributions. Ended up as a loan to shareholder. Oh well client's choice.

[BP.]

My software calculated 0% for the capital gain up to 65,100 of taxable income, then 15% after that. (MFJ return 99K Taxable Inc, 73K LT Capital Gain) The original poster and others got 0% on the entire LT Capital Gain?

Sounds right --- your CG's are in excess of the $65,1000 for MFJ 15% ordinary bracket. So you've got some at 0%, and some spillover into 15%.