New 20% Capital Gains Rate for 2013

[John of PA]

For 2013, a capital gain is taxed at 20% rather than 15% for a joint return with income over 450,000. Is the extra 5% on the entire gain or just on the excess gain over 450,000. Taxpayer (joint 1040) has a 700,000 gain on the sale of a rental property for 2013 with (for simplity pruposes) no other items of income and expenses. Is the entire gain at 20%, or is the gain up to 450,000 taxed at 15% and the excess over 450,000 taxed at 20%. For simplicity purposes disregard the AMT. Thank you for any help you can provide.

[Golden Rocket]

Same Principles

Although none of us have seen the forms for 2013, I would consult the 2012 Dividend/Capital Gain worksheet.

I can't give you an authoritative answer to the question, but I would assume the same type calculations would apply, except now there is another rate tacked onto the top. Last year's worksheet immediately jacked up the AGI, meaning the REST of the TP income was taxed at the most advantageous rate even though a ceiling was placed on the Div/CG rate. Then the DIV/CG ceiling filtered upward through the CG brackets, starting with zero, until the ceiling for that bracket was reached.

[Roland Slugg]

Starting in 2013 the 20% rate applies to long-term capital gains (and dividend income) for taxpayers is in the 39.6% tax bracket. If your clients have little or no other income, their entire LTCG will be taxed at 15%. In fact some of it may be taxed at 0% ... if their ordinary income tax bracket is 15% or less.

The new 3.8% medicare tax will apply, so that will raise the overall effective rate of tax on their gain.

[JoshinNC]

Caveat - I've done no research to support this

Starting in 2013 the 20% rate applies to long-term capital gains (and dividend income) for taxpayers is in the 39.6% tax bracket. If your clients have little or no other income, their entire LTCG will be taxed at 15%. In fact some of it may be taxed at 0% ... if their ordinary income tax bracket is 15% or less.

The new 3.8% medicare tax will apply, so that will raise the overall effective rate of tax on their gain.

I would believe that a taxpayer that had a $700k LTCG would not be able to only pay 15% or 0% under the new rules that were whisked in on 1/2/13. I believe, from memory, that if the taxpayer's TOTAL income exceeds the threshold $400k/$450k then they pay the higher LTCG rate (not sure if it would be on the amount only exceeding the threshold or all of their gain).

I intend to research this further.

[John of PA]

Thank you for your input. It apperas from comments on other listsearves that the 20% will kick in because the AGI will be over 450,000 and the 20% will only be on the amount of gain over 450,000. The first 450,000 of gain would be subject to the 0 and 15% brackets. Unfortunately, the Drake Planner for 2013 does not have an update for the new tax laws.