Zero Cap.Gains

[Gretel]

I have a hard time getting my mind around all the implication the zero cap.gains rates have.

My client's income is just under the limit to be in 15% bracket and will have $20,000 cap. gains. My understanding is that the higher AGI could affect other calculations but he will not jump into the higher tax bracket for the amount over the lower tax bracket limit, right?

I hope my question is clear enough. In other words: If AGI limitations won't effect anything he will not have to pay more taxes.

[dyne]

A while back I entered several scenerios into my computer trying to determine if the
zero capital gain would be an actual benefit. In EVERY case I tried the capital gain was
NOT taxed at a zero rate. I am sure their are situations where it will apply, but it appears
that they will be rare and will not benefit most of my clients.

[Burke]

I
My client's income is just under the limit to be in 15% bracket and will have $20,000 cap. gains. My understanding is that the higher AGI could affect other calculations but he will not jump into the higher tax bracket for the amount over the lower tax bracket limit, right?

From your post, I am reading that his OTHER income is just under the limit for the 15% bracket (net taxable income after deductions/exemptions)?? And the $20,000 cap gains will put him over? Remember that the 15%/25%/etc tax rates are not based on AGI, but NTI. If he straddles brackets (some income in 15% and excess in 25%, say), then the part of cap gains which actually falls in the 15% or lower brackets is not taxed. The part which goes into the higher brackets is taxed at a maximum of 15%. If you plug in some numbers into a dummy tax return, the QD&CG Worksheet will show you this calculation. The important thing to remember is, the OTHER income is taxed first, with the cap gains coming at the end to determine what bracket he is in for cap gains rates. AGI limitations which is calculated on ALL income (cap gains included) will kick in for everything on which that is based, i.e, Social Security, medical exclusion, 2% employee business expense, etc. etc.

[solomon]

I have a hard time getting my mind around all the implication the zero cap.gains rates have.

My client's income is just under the limit to be in 15% bracket and will have $20,000 cap. gains. My understanding is that the higher AGI could affect other calculations but he will not jump into the higher tax bracket for the amount over the lower tax bracket limit, right?

I hope my question is clear enough. In other words: If AGI limitations won't effect anything he will not have to pay more taxes.

If your client were single, for example, with AGI of 30000 and of that amount the non adjusted net capital gain were 10000 (i.e. income other than the 20000 adjusted net capital gain), then 10000 minus the standard deduction (5450) and minus personal exemption (3500) would equal 1050 taxable with tax of 105.

The 20000 adjusted net capital gain would be taxed at zero per cent.

[Gretel]

Thank you so much everyone. I finally plucked in the numbers, and for my client it is effectively no additional tax. I was pretty sure I understand the mechanics but get always itchy if I have to make predictions.

[joanmcq]

Dyne, I've seen lots of people with no tax that had large capital gains. Especially one of my SE clients that had low income due to taking off work for a year. Could afford to since he sold his vacation home in europe for a very nice gain.

Tax---$0.