Long Term Capital Gain Tax Calculation

Forum|Forum|1 year ago
May 12, 2024
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I have some questions regarding how long term capital gain (LTCG) tax is calculated.

Using 2024 numbers, $0 to $94,050 LTCG tax rate is %, married filing jointly standard deduction is $29,200.

If my income is $123, 250 with all of it being LTCG, my tax will be $0 because my taxable income is $123,250 - $29,200 = $94,050, which falls in the 0% bracket.

Now if I make $1 more in LTGC, my taxable income will be $94,051, which falls in the 15% bracket. What I want to know is: does this make the whole $94,051 taxed at 15% or only the $1 (the portion that's above the $94,050 threshold) taxed at 15% and the $94,050 still at 0%?

I will be surprised if it is former case but there are some online calculators that.

Thank you.

Not A Product Question

Mike9241

only the $1 gets taxed at 15%

knownoiseAuthor

Does it matter if the $1 is ordinary income? Do I still pay $0 tax on the LTCG?

Hal_Al

Employee

If the $1 is ordinary income, it goes to the "front of the line", pushing $1 of the LTCG to the 15% tax rate. That is, the $1 is taxed at 15% (LTCG rate) not 22% (the ordinary income rate). Another way to look at it is: your standard deduction first offsets ordinary income before it offsets LTCG. After that ordinary income is taxed before LTCG.