This video is helpful, but it's still a very confusing topic. Thank you, IRS! The key is to understand the terminology AGI includes income, short term gains and long term gains. Note this assumes you have gains. If you also took some short term and long term losses those would be netted agains the gains. The net amounts are what gets counted (i.e. losses are written off and not counted as income). Total Taxable Income = AGI minus deduction Ordinary taxable income = income + short term gains - deduction. This gets taxed based on the Federal Income tax brackets Long term gains are taxed using the Capital Gains Tax brackets. In the example, the 0% capital gains tax applies for taxable income up to $83,350. $74,000 is already used up as ordinary income so that leaves 9,350 of capital gains to fill the 0% bracket. The remaining capital gains of 90,650 is then taxed at 15%. Here's another good video on the topic ruclips.net/video/x2shSiKmYRw/видео.html
As of 2008 the tax code was over 70,000 pages. It could easily be over 90,000 pages by now. Any honest accountant will tell you they've never read all the tax laws.
Such a great explanation of capital gains' effect on ordinary income! I wish I had seen this a lot earlier. I do still have one nagging question regarding capital gains and harvested capital losses that my F*****y advisors cannot seem to answer. My advisor talked me into harvesting a lot of tax losses a couple of years ago, and after learning so much from your videos/podcasts, I worked hard to get my taxable income so low this year that I can harvest $47k gains at 0%. ****My question is do I have to NET harvested tax losses against this since my taxable income will be less than $25k for 2024, and I don't need to use any harvested losses for 0% tax?**** I am planning to retire within a couple months for health reasons, and my income will definitely be higher than this year for the rest of my life. I would like to save the tax losses to net for future years, like when I sell my home.
James, this is an excellent explanation for someone (like myself) who is calculating the maximum Roth conversion he can do in order to fill up a certain tax bracket to attain the most Roth tax benefit for that year! You do not have to factor in the amount of LTCG long term capital gains while filling the remainder of your bracket with Roth conversion. Thank you. I totally clarified this for me.
Holy crap man, I need to go buy a click farm and spam likes on this video b/c after a few hours of searching you're the only one that has realized people need to understand how capitals gains and ordinary income interact with each other, not just separately. Thank you for this clear and concise explanation of this topic, including examples using numbers crossing ordinary income and capital gains tax brackets. I can see you've put some thought into the example you chose and it's really really appreciated.
Tax laws can be so complex, and it’s super helpful to break them down like this. Understanding how different policies can impact our finances is crucial for making informed decisions.
OMG!!! This is exactly applicable to my situation! I was just doing research on this last week! Your video explains the situation so clearly! Thank you so much James!!!🙏🏾🙏🏾🙏🏾🥰
@@RootFP So I only have and use Uphold and I traded crypto back and forth within Uphold. I only cashed out $700 for the entire year, all the rest i just traded one Crypto for Another but did not cash it out. I dont understand why my Capital Gains says $626,500 and total Income is only $85.00 When I only cashed out $700 in 2023. How are gains that high!? How do I have to pay taxes on $626,500 when I only actually made $85 and cashed out $700. Help.... Im confused
Finally I found someone who explained it in detail. I was assuming way more in taxes then what I will have to actually pay. This was perfect thank you!
There must be a zillion boomers who bought their homes at $300K and today could sell them for a million. It would be really helpful to see a video for those with social security as income to calculate the impact of selling the house and moving on…
I had to watch this several times just to make sure I understood. While a LT Capital Gain does not increase the tax bracket, it most definitely affects AGI. So if you are trying to pay a 0% LTCG tax the overall total of your income must stay below the current LTCG threshold. My goal is to Tax Gain Harvest stock I received with a zero cost basis and to pay no tax on it, however I have to be careful not to cross the limit or some may be subject to the 15% tax.
Fantastic explanation. I've never really had a clear understanding of how capital gains figure into tax calculation before. Thank you so much, James Conole! This video helps immensely.
You can find this sort of analysis all over RUclips and the Internet, but no one explains why this isn't reflected in what I've seen on a Schedule D and a 1040. Line 7 on your 2023 1040 is the combination of short and long-term capital gains from Schedule D, no? This gets added in with all your other income on line 9, for "total income". AGI is total income less schedule 1, line 26 (nothing to do with capital gains). The IRS even says that AGI includes capital gains. It would be far more helpful to actually use the IRS forms to show this, because writing numbers on a notepad, well you can make up anything. What I'd like to see is someone explain why we separate short and long-term gains on page 1 of Schedule D and on the very next line (16) we add them together and then (if it's a gain) it goes right on line 7 of form 1040 and into AGI and the very number that determines not only our tax but our tax bracket. I'm sure I'm missing something, but no one addresses that.
I agree, it would help to see an example using the actual forms. Maybe some of these comments will be helpful. On Schedule D, you combine all short term gains and (losses) and also combine all long-term gains and (losses). This is done because losses can always be used to offset gains. Then you end up with a short term total g/(l) and a long-term total g/(l). Then short term total and long term total get added. If the result is positive, the entire amount flows through to 1040, line 7 and gets counted as you noted as part of AGI. If part of the gain is short term, it gets treated as ordinary income. If part of the gain is long term, it will get the capital gains tax rate. If the result is negative, then only up to 3,000 of losses for single filers flows through to 1040, line 7 to offset other income. Any losses remaining get carried over to the next year. Let's say you have $10,000 of short term gains and $5,000 of long-term losses. Then $5,000 of net short term gains flows through to 1040 and gets taxed as ordinary income. If you have $5,000 of short term losses and $10,000 of long term gains....then $5,000 flows through to 1040 and will get taxed at capital gains rate. If you have $5,000 of short term gains and $10,000 of long term gains, then $15,000 flows through to 1040, line 7 and the $5,000 short term gets taxed as ordinary income and $10,000 gets taxed at capital gains rate. If you have both short term and long term losses, then the Capital Loss Carryover Worksheet is used to track both short and long term loss carryovers. These get tracked separately and will be entered on separate lines on Schedule D for the following tax year.
There’s no way I understood this correctly. Is he saying that if your taxable income is below the 83,000 limit for 0% capital gains, that you don’t pay any capital gains tax???
Not exactly. In his $100K LTCG and $74K EI example the amount between $83,350 limit and the $74,000 earned income is taxed at 0, the balance is taxed at 15%.
Thank you very munch for a well explained topic. As a point of clarification, using your example, since the AGU is below $83K, shouldn't the $100K LTCG be taxed as ZERO $'s? It seemed that you indicated that the difference between AGI and $83K ($83K-$74K) would be taxed at ZERO rate, so $9K out of the $100K would be taxed at ZERO and the remained $91K at 15%? I appreciate if you could clarify this important point, which is correct. Thanks in advance.
An easier example to follow. $97k of income all W2 with a $3k cap loss. You pay tax on $94k in the 12% bracket. Now you take a $3k cap gain which is offset by the cap loss and you now pay tax on $97k and you are in the 22% bracket. Boom.
As a bonus, $250 more of long term cap gains or qualified dividends can add more tax than the same amount of ordinary income or short term cap gains or non qualified dividends.
Very well detailed. One thing I was wondering if I sold a rental at the very beginning of the year, then for that year I had other passive income and also a business but the business had a loss would the loss be able to calculate into my overall income for the purpose of reducing my tax bracket and the capital gains rate? also would buying a business vehicle and taking the bonus depreciation (60% limit for 2025) would that be permitted to calculate into the income (with a resulting loss) to reduce the tax bracket for the capital gains? If you can answer I would appreciate the shared knowledge.
The answer is yes cap gains can increase your tax on ordinary income as well as dividends. Example using round numbers after all deductions. Your married filing jointly with income of $97k of which $3k is from qualified dividends and the rest W2 wages and you have a $3k cap loss bringing taxable income to $94k. You will pay tax on $91k of ordinary income and zero tax on the $3k of dividends. If you added $3k of capital gains then they would be offset by the $3k of cap losses and you would pay zero tax on the cap gain. However you now would pay tax on an additional $3k of ordinary income at 12% plus 15% on $3k of dividends previously not taxed. Therefore the $3k of cap gain caused 27% of tax to other income.
If you are receiving Social Security, capital gains can cause your Social Security to become taxable which can cause your ordinary income to increase and pay more income taxes.
On line 16, Part III of Schedule D, it says to combine line 7 (short term) and 16(long term). But if your long term is being taxed at 0%, 15%, or 20% (different than short term), then why are they combined together? Is there another form or method of entering the long term capital gains
You answered my exact question. We live in the 12% bracket which I want to max out with Roth conversions. I'd love to sell some taxable mutual fund shares, but I'm not interested in paying 15% tax, so I'll hold off on that.
Case study drawn 50 k ,Long term investments went "over" for AGI Roth IRA filing tax married couple . The question is did I am still qualified for Roth contributions if defined income is over 250 thousand including the 50 k witdrawal.Thanks
Very informative video! I am not a financial or tax expert, but your statement about "Roth Conversions" seems to be incorrect. Don't Roth Conversions always involve pulling money out of a tax deferred account and putting it into a Roth? And that would definitely be considered as "Income" and does push you into a higher tax bracket! And isn't that one of the reasons why you do Roth Conversions over multiple years until you hit the next income bracket? But other than Roth Conversions your explanation was very helpful! Can you please elaborate whether or not Roth Conversions do put us into a higher bracket? Thank you!
I think you got confused. He's implying that capital gains will not impact your income bracket for Roth conversion, they''re handled separately. Yes, you'll definitely be pushed to a higher tax bracket just like earned income if you decide to convert $200,000 to Roth in a single year. However, what he's saying is that for example, that same year you also sold another $100,000 worth of stocks, then that's handled differently and will have zero impact on increasing taxes on your initial ROTH conversion. Your ROTH conversion will be taxed just as it is, like ordinary income, while the capital gains will be taxed using a separate tax table, in this case, 15%.
At 05:12 you said if your AGI is below $83,000 you pay 0 in Capital gains, but at 06:01 you say it's taxed at 15%. I'm really confused. Since my only yearly income is around $17,500 in Social Security, I shouldn't pay any LT Gains on my investments?
Yes. I work with a family office and one thing we specialize in is taxes. Long story short is your income rate determines your cap gains rate so if you make global income 0 then cap gains is also 0
I always love your videos. You explain the things very well and provide a lot of good information that benefits us. One question, if I also had the capital loss and capital gains, how the calculation would be? Would the gains minus the loss first and then apply to the tax bracket rules? Or vice versa?
Confused as F about AGI... what all goes into it... several sources from google say capital gains do go into calculating AGI/adjusted gross income... what is the truth?... is there an irs webpage that has written/black and white?
This is from the IRS website: Adjusted gross income, also known as (AGI), is defined as total income minus deductions, or "adjustments" to income that you are eligible to take. Gross income includes wages, dividends, capital gains, business and retirement income as well as all other forms income. Examples of income include tips, rents, interest, stock dividends, etc.
Adjustments to income are deductions that reduce total income to arrive at AGI. Examples of adjustments include half of the self-employment taxes you pay; self-employed health insurance premiums; contributions to certain retirement accounts (such as a traditional IRA); student loan interest paid; educator expenses, etc. You can find your previous AGI on your 2022 federal tax return to use as a guide. Please refer to Line 11 if you filed a Form 1040. Your AGI is calculated before you take your standard or itemized deduction on Form 1040.
On schedule D (Federal 1040)... If both short and long term gains are just simply added together, then how are long term gains treated any better than ordinary income, or short term gains?
Excellent video! I have a question. If my regular income (single filing) is 37k and I gain over 250k in capital gains. Do I pay capital gains taxes on a house I sold that lived in for four consecutive years? It’s a rental. I live in the same house as tenants. Also, I’d be spending most of my gains on a new home. I live in the state of Rhode Island. I messaged my accountant but he has not answered me. I’m not sure 🤔 if I should sell or not. I’ve owned the property for decades. Thank you!
GREAT EXPLANATION! You broke it down very well. So just to be clear, the 100k of long-term capital gains is added to AGI on line 11 (using the 2021 - 1040 Form) and to Taxable Income on line 15 but is not considered in determining the taxable income threshold in regard to Capital gains rates?
I think what you are asking about is addressed at about the 4:40 mark. in figuring your long term capital gains rate, you first consider ordinary income (minus deductions), and then you stack your ltcg on top, and that total will decide the rate you pay.
Very nice. Thanks! Interesting, I always thought 83K was in relation to the cap gains only, not my ordinary income + cap gains. I guess I was getting charged 15%. I suppose rebalancing a taxable account should consider this?
James, thanks for the video and you did a good job in explaining capital gains and ordinary income. However, I'm confused with a statement you made near the end about Roth conversion: it sounded like Roth conversion has no impact on your tax bracket. My understanding is that Roth conversion is considered as ordinary income, not capital gains, as it will push up your ordinary income tax bracket. Could you comment? Thanks!
Quick question 🙋♂️. Lets say i made 75K AGI 100K for long term capital gains and 100K short term gains, will that push my AGI well above 175K since i earned short term capital gains? Thank you
Thanks for the helpful video. What would the tax calc for the income tax and LTCG tax on an example where the ordinary income is same as the standard deduction of $27,700 (MFJ) and a LTCG of $125,000? Tax on ordinary income would be $0 and tax on LTCG would be (0% * 89,250)+(15% * 35,750) = $5,363 ?
If I sold a home and the capital gain is not taxable due to the 500 exemption for married filing jointly,,, Would I still need to report the gains on my return. Schedule D?
THIS is exactly info I was looking for! I had never heard that long term capital gains was taxed differently than regular income, and I’ve been over stressing how to get part of my pre-tax into a Roth without going into upper level brackets. Can I assume long term rates will adjust in future when regular income brackets go up?
good stuff very helpful as we are selling some property. ON short term capital gains on the sell of real estate is that taxed as ordinary income if your AGI is less that 50k?. please help
This is a basic question but how do you know how much capital gains you have when you pull out money from your brokerage? Will you get a statement for each time or at the end of the year?
Hello James, if holding a stock longer than 1 year, and after that you sell, will be taxed at 15% long term capital gain. If sold in april 2024, with a sizable capital gain, do we need pay 15% taxes in this 2024 year or can wait till 2025 income tax filling ? will this incur a penalty tax?
At 7:38 you said long term gains wont push you into a higher bracket but right before you said whether its short term or long term it wont push you to next tax bracket no?
What happens if i hold 100 stocks for over a year, then add 1 of the same stock for a total of 101, and few weeks later sell 1 stock. Do gains from this sell be long or short term or some fraction of both?
It is not clear to me, I am particularly confused by things said from 5:20 to 5:50 mark. So in the scenario discussed ($74k AGI and $100k LTCG); what would be federal income tax? And then what would be fedreal income tax in following scenarios 1) if someone has AGI of $83,349 and $100k LTCG 2) if someone has AGI of $83,351 and $100k LTCG
I read you can only deduct 3000 in losses. So if I win 40000 in the stock market and lose 30000 the same year. would I be taxed on 10000 or would I be taxed on 37000?
@root financial planners - Hello. I just want to clarify...if we converted 50k to a Roth, I understand that this will count towards our income for IRMAA but it doesn't count towards the income as far as the threshold for Roth contributions right? For instance, I am single and I think I can make up to 127k in 2022 if I want to contribute towards a Roth for 2022. As far as my actual income, I made about 35k from a part time job and I will have some capital gains from selling stocks but the 50k that I converted doesn't count towards the 127k max income to contribute to a Roth right? Thank you.
Great video. I am basically in the 15% bracket for capital gains. If I earn, say 85K per year, is the tax on my Capital Gains taxed at 2 different brackets.
yes, since 85k income would put you above the 0% bracket, you would have zero of your capital gains taxed at 0%, they would all be taxed at the higher bracket levels.
thanks for the video my question is for capital gain from 0 - 83,000 I will get tax 0%? and anything above 83,000 I get tax for 15%? I hoped this question make sense. please let me know. thanks.
Where on the 1040 due you enter the 2 different amounts of taxation. One for income and the other for the long term capital gain. On the 1040 the agi is a combo of the 2 incomes and goes straight to standard deduction/itemized and less that amount is your taxable income. In your example you are taking deductions from regular income before adding the capital gain. Can't do that on form 1040. PLEASE ADD TO THIS VIDEO OR DO A SEPARATE ONE SHOWING HOW TO ADDRESS THE 1040 LONG HAND WITHOUT CALCULATORS. THANKS
You would just take your agi and subtract the capital gains amount from it. then subtract your standard or itemized deduction from that number, and that's the number you would use to determine your LTCG rate.
You need to take your taxable income and use the Qualified Dividends and Capital Gain Tax Worksheet For Line 16 which you can find in the 1040 instructions to figure out the amount you will actually owe. Do not use the Tax and Earned Income Credit Tables if you have capital gains or qualified dividends.
I'm going to go out on a limb and say it's rare to have $100k (long term capt gains) profit when selling an investment property and have zero depreciation recapture. 🤔
Lets say my AGI is $20K , so that means I can sell stocks and have a profit of LTCG of $21,675 ( total income of $41,675 ) and all my LTCG will be taxed at 0 right ? if I sell stock and profit $21,676 LTCG then I would have to pay 15% on that extra one dollar I went over the $41,675 threshold correct ? Do I have this right ?
So you said it cap gains affects agi? And you marked $76k as agi. Then added $100k to it and say tax rate is from ordinary income. So label each thing correctly - you messed up and misled everyone.
This is the best explanation of capital gains I have ever seen! No one on RUclips has explained this as well.
Agree
This video is helpful, but it's still a very confusing topic. Thank you, IRS! The key is to understand the terminology
AGI includes income, short term gains and long term gains. Note this assumes you have gains. If you also took some short term and long term losses those would be netted agains the gains. The net amounts are what gets counted (i.e. losses are written off and not counted as income).
Total Taxable Income = AGI minus deduction
Ordinary taxable income = income + short term gains - deduction. This gets taxed based on the Federal Income tax brackets
Long term gains are taxed using the Capital Gains Tax brackets. In the example, the 0% capital gains tax applies for taxable income up to $83,350. $74,000 is already used up as ordinary income so that leaves 9,350 of capital gains to fill the 0% bracket. The remaining capital gains of 90,650 is then taxed at 15%.
Here's another good video on the topic
ruclips.net/video/x2shSiKmYRw/видео.html
As of 2008 the tax code was over 70,000 pages. It could easily be over 90,000 pages by now. Any honest accountant will tell you they've never read all the tax laws.
Such a great explanation of capital gains' effect on ordinary income! I wish I had seen this a lot earlier. I do still have one nagging question regarding capital gains and harvested capital losses that my F*****y advisors cannot seem to answer. My advisor talked me into harvesting a lot of tax losses a couple of years ago, and after learning so much from your videos/podcasts, I worked hard to get my taxable income so low this year that I can harvest $47k gains at 0%. ****My question is do I have to NET harvested tax losses against this since my taxable income will be less than $25k for 2024, and I don't need to use any harvested losses for 0% tax?**** I am planning to retire within a couple months for health reasons, and my income will definitely be higher than this year for the rest of my life. I would like to save the tax losses to net for future years, like when I sell my home.
James, this is an excellent explanation for someone (like myself) who is calculating the maximum Roth conversion he can do in order to fill up a certain tax bracket to attain the most Roth tax benefit for that year! You do not have to factor in the amount of LTCG long term capital gains while filling the remainder of your bracket with Roth conversion. Thank you. I totally clarified this for me.
Holy crap man, I need to go buy a click farm and spam likes on this video b/c after a few hours of searching you're the only one that has realized people need to understand how capitals gains and ordinary income interact with each other, not just separately. Thank you for this clear and concise explanation of this topic, including examples using numbers crossing ordinary income and capital gains tax brackets. I can see you've put some thought into the example you chose and it's really really appreciated.
Tax laws can be so complex, and it’s super helpful to break them down like this. Understanding how different policies can impact our finances is crucial for making informed decisions.
OMG!!! This is exactly applicable to my situation! I was just doing research on this last week! Your video explains the situation so clearly! Thank you so much James!!!🙏🏾🙏🏾🙏🏾🥰
You’re welcome!
@@RootFP So I only have and use Uphold and I traded crypto back and forth within Uphold. I only cashed out $700 for the entire year, all the rest i just traded one Crypto for Another but did not cash it out. I dont understand why my Capital Gains says $626,500 and total Income is only $85.00 When I only cashed out $700 in 2023. How are gains that high!? How do I have to pay taxes on $626,500 when I only actually made $85 and cashed out $700. Help.... Im confused
Another problem, if you have Medicare Part B, a significant capital gain could double your Part B Premium.
James, you are a really great communicator.
Finally I found someone who explained it in detail. I was assuming way more in taxes then what I will have to actually pay. This was perfect thank you!
There must be a zillion boomers who bought their homes at $300K and today could sell them for a million. It would be really helpful to see a video for those with social security as income to calculate the impact of selling the house and moving on…
I had to watch this several times just to make sure I understood. While a LT Capital Gain does not increase the tax bracket, it most definitely affects AGI. So if you are trying to pay a 0% LTCG tax the overall total of your income must stay below the current LTCG threshold. My goal is to Tax Gain Harvest stock I received with a zero cost basis and to pay no tax on it, however I have to be careful not to cross the limit or some may be subject to the 15% tax.
Fantastic explanation. I've never really had a clear understanding of how capital gains figure into tax calculation before. Thank you so much, James Conole! This video helps immensely.
You can find this sort of analysis all over RUclips and the Internet, but no one explains why this isn't reflected in what I've seen on a Schedule D and a 1040. Line 7 on your 2023 1040 is the combination of short and long-term capital gains from Schedule D, no? This gets added in with all your other income on line 9, for "total income". AGI is total income less schedule 1, line 26 (nothing to do with capital gains). The IRS even says that AGI includes capital gains.
It would be far more helpful to actually use the IRS forms to show this, because writing numbers on a notepad, well you can make up anything. What I'd like to see is someone explain why we separate short and long-term gains on page 1 of Schedule D and on the very next line (16) we add them together and then (if it's a gain) it goes right on line 7 of form 1040 and into AGI and the very number that determines not only our tax but our tax bracket. I'm sure I'm missing something, but no one addresses that.
I agree, it would help to see an example using the actual forms. Maybe some of these comments will be helpful.
On Schedule D, you combine all short term gains and (losses) and also combine all long-term gains and (losses). This is done because losses can always be used to offset gains. Then you end up with a short term total g/(l) and a long-term total g/(l).
Then short term total and long term total get added.
If the result is positive, the entire amount flows through to 1040, line 7 and gets counted as you noted as part of AGI. If part of the gain is short term, it gets treated as ordinary income. If part of the gain is long term, it will get the capital gains tax rate.
If the result is negative, then only up to 3,000 of losses for single filers flows through to 1040, line 7 to offset other income. Any losses remaining get carried over to the next year.
Let's say you have $10,000 of short term gains and $5,000 of long-term losses. Then $5,000 of net short term gains flows through to 1040 and gets taxed as ordinary income.
If you have $5,000 of short term losses and $10,000 of long term gains....then $5,000 flows through to 1040 and will get taxed at capital gains rate.
If you have $5,000 of short term gains and $10,000 of long term gains, then $15,000 flows through to 1040, line 7 and the $5,000 short term gets taxed as ordinary income and $10,000 gets taxed at capital gains rate.
If you have both short term and long term losses, then the Capital Loss Carryover Worksheet is used to track both short and long term loss carryovers. These get tracked separately and will be entered on separate lines on Schedule D for the following tax year.
There’s no way I understood this correctly. Is he saying that if your taxable income is below the 83,000 limit for 0% capital gains, that you don’t pay any capital gains tax???
Only if you're married, filing jointly.
Not exactly. In his $100K LTCG and $74K EI example the amount between $83,350 limit and the $74,000 earned income is taxed at 0, the balance is taxed at 15%.
@@sw6118thank you now I get it
Excellent and timely, thanks. But you missed the Elephant of Depreciation Recapture, which is definitly taxed at another, seperate rate, right?
I wish I had a guy like you helping with my taxes 😢
Thank you very munch for a well explained topic. As a point of clarification, using your example, since the AGU is below $83K, shouldn't the $100K LTCG be taxed as ZERO $'s? It seemed that you indicated that the difference between AGI and $83K ($83K-$74K) would be taxed at ZERO rate, so $9K out of the $100K would be taxed at ZERO and the remained $91K at 15%? I appreciate if you could clarify this important point, which is correct. Thanks in advance.
Lol...$100,000 taxed @ 0? IRS says in your dreams. You're second scenario is correct.
so wonderful. Wish you were on all the time.
There should have been way more views and likes on this video! Very clear explanation
Wow. I have a CPA and I didn’t understand this until this video
I'm glad this video was helpful! The difference between ordinary income and capital gains taxation can get real confusing.
@@RootFP Glad to know you’re in California. Will call you when we’re ready
Just the info I needed. Thanks for sharing!
An easier example to follow. $97k of income all W2 with a $3k cap loss. You pay tax on $94k in the 12% bracket. Now you take a $3k cap gain which is offset by the cap loss and you now pay tax on $97k and you are in the 22% bracket. Boom.
Well done young man. Very helpful.
Great video this helps a lot !! Thank you Sir. Great communication and educational skills.
Wonderful info, I always wondered how my qualified dividend and capital gains are going to affect my tax bracket! Thank you !
Glad it was helpful!
As a bonus, $250 more of long term cap gains or qualified dividends can add more tax than the same amount of ordinary income or short term cap gains or non qualified dividends.
Thank you for the wonderful Info. Your explanation is the best!
Very well explained everything, thank you for content
Very well detailed. One thing I was wondering if I sold a rental at the very beginning of the year, then for that year I had other passive income and also a business but the business had a loss would the loss be able to calculate into my overall income for the purpose of reducing my tax bracket and the capital gains rate? also would buying a business vehicle and taking the bonus depreciation (60% limit for 2025) would that be permitted to calculate into the income (with a resulting loss) to reduce the tax bracket for the capital gains? If you can answer I would appreciate the shared knowledge.
The answer is yes cap gains can increase your tax on ordinary income as well as dividends. Example using round numbers after all deductions. Your married filing jointly with income of $97k of which $3k is from qualified dividends and the rest W2 wages and you have a $3k cap loss bringing taxable income to $94k. You will pay tax on $91k of ordinary income and zero tax on the $3k of dividends. If you added $3k of capital gains then they would be offset by the $3k of cap losses and you would pay zero tax on the cap gain. However you now would pay tax on an additional $3k of ordinary income at 12% plus 15% on $3k of dividends previously not taxed. Therefore the $3k of cap gain caused 27% of tax to other income.
great video, clear and concise with good enunciation
If you are receiving Social Security, capital gains can cause your Social Security to become taxable which can cause your ordinary income to increase and pay more income taxes.
Glad it was helpful!
On line 16, Part III of Schedule D, it says to combine line 7 (short term) and 16(long term). But if your long term is being taxed at 0%, 15%, or 20% (different than short term), then why are they combined together? Is there another form or method of entering the long term capital gains
You answered my exact question. We live in the 12% bracket which I want to max out with Roth conversions. I'd love to sell some taxable mutual fund shares, but I'm not interested in paying 15% tax, so I'll hold off on that.
Case study drawn 50 k ,Long term investments went "over" for AGI Roth IRA filing tax married couple . The question is did I am still qualified for Roth contributions if defined income is over 250 thousand including the 50 k witdrawal.Thanks
Very informative video! I am not a financial or tax expert, but your statement about "Roth Conversions" seems to be incorrect. Don't Roth Conversions always involve pulling money out of a tax deferred account and putting it into a Roth? And that would definitely be considered as "Income" and does push you into a higher tax bracket! And isn't that one of the reasons why you do Roth Conversions over multiple years until you hit the next income bracket?
But other than Roth Conversions your explanation was very helpful!
Can you please elaborate whether or not Roth Conversions do put us into a higher bracket? Thank you!
I think you got confused. He's implying that capital gains will not impact your income bracket for Roth conversion, they''re handled separately. Yes, you'll definitely be pushed to a higher tax bracket just like earned income if you decide to convert $200,000 to Roth in a single year. However, what he's saying is that for example, that same year you also sold another $100,000 worth of stocks, then that's handled differently and will have zero impact on increasing taxes on your initial ROTH conversion. Your ROTH conversion will be taxed just as it is, like ordinary income, while the capital gains will be taxed using a separate tax table, in this case, 15%.
At 05:12 you said if your AGI is below $83,000 you pay 0 in Capital gains, but at 06:01 you say it's taxed at 15%. I'm really confused. Since my only yearly income is around $17,500 in Social Security, I shouldn't pay any LT Gains on my investments?
Capital gain is counted in AGI, and whether one gets 0%, 15%, and 20% of long term capital gain tax depends on AGI, right?
That's what I was under the impression with.
Yes. I work with a family office and one thing we specialize in is taxes. Long story short is your income rate determines your cap gains rate so if you make global income 0 then cap gains is also 0
I always love your videos. You explain the things very well and provide a lot of good information that benefits us. One question, if I also had the capital loss and capital gains, how the calculation would be? Would the gains minus the loss first and then apply to the tax bracket rules? Or vice versa?
What about short term capital gains??? You have any info on that?
Confused as F about AGI... what all goes into it... several sources from google say capital gains do go into calculating AGI/adjusted gross income... what is the truth?... is there an irs webpage that has written/black and white?
This is from the IRS website:
Adjusted gross income, also known as (AGI), is defined as total income minus deductions, or "adjustments" to income that you are eligible to take.
Gross income includes wages, dividends, capital gains, business and retirement income as well as all other forms income.
Examples of income include tips, rents, interest, stock dividends, etc.
Adjustments to income are deductions that reduce total income to arrive at AGI.
Examples of adjustments include half of the self-employment taxes you pay; self-employed health insurance premiums; contributions to certain retirement accounts (such as a traditional IRA); student loan interest paid; educator expenses, etc.
You can find your previous AGI on your 2022 federal tax return to use as a guide. Please refer to Line 11 if you filed a Form 1040.
Your AGI is calculated before you take your standard or itemized deduction on Form 1040.
On schedule D (Federal 1040)...
If both short and long term gains are just simply added together, then how are long term gains treated any better than ordinary income, or short term gains?
Great, clear explanation.
Glad it was helpful!
Excellent video! I have a question. If my regular income (single filing) is 37k and I gain over 250k in capital gains. Do I pay capital gains taxes on a house I sold that lived in for four consecutive years? It’s a rental. I live in the same house as tenants. Also, I’d be spending most of my gains on a new home. I live in the state of Rhode Island. I messaged my accountant but he has not answered me. I’m not sure 🤔 if I should sell or not. I’ve owned the property for decades. Thank you!
GREAT EXPLANATION! You broke it down very well. So just to be clear, the 100k of long-term capital gains is added to AGI on line 11 (using the 2021 - 1040 Form) and to Taxable Income on line 15 but is not considered in determining the taxable income threshold in regard to Capital gains rates?
Glad it was helpful!
I think what you are asking about is addressed at about the 4:40 mark. in figuring your long term capital gains rate, you first consider ordinary income (minus deductions), and then you stack your ltcg on top, and that total will decide the rate you pay.
Not so sure thats it....
To be so financially smart , it seems that living in California is not a very good financial decision
Great video! In California is long term capital gains added as income and taxed as income?
Thank you! And yes, that is correct
Very helpful. Thanks!
Very nice. Thanks! Interesting, I always thought 83K was in relation to the cap gains only, not my ordinary income + cap gains. I guess I was getting charged 15%. I suppose rebalancing a taxable account should consider this?
Yes it’s important to consider ordinary income and capital gains when looking at rebalance options
This was a point of confusion for me: Your ordinary income DOES affect the rate you pay on your long-term capital gains income.
Great job 👍, very informative
Thank you
Ooo, thanks for clarifying James! 🙌
You’re welcome!
The answer can be yes.
James, thanks for the video and you did a good job in explaining capital gains and ordinary income. However, I'm confused with a statement you made near the end about Roth conversion: it sounded like Roth conversion has no impact on your tax bracket. My understanding is that Roth conversion is considered as ordinary income, not capital gains, as it will push up your ordinary income tax bracket. Could you comment? Thanks!
Quick question 🙋♂️.
Lets say i made 75K AGI
100K for long term capital gains and 100K short term gains, will that push my AGI well above 175K since i earned short term capital gains? Thank you
Do you need to itemize every receipt for repairs ,maintenance and upgrades?
Yes
Thanks for the helpful video. What would the tax calc for the income tax and LTCG tax on an example where the ordinary income is same as the standard deduction of $27,700 (MFJ) and a LTCG of $125,000? Tax on ordinary income would be $0 and tax on LTCG would be (0% * 89,250)+(15% * 35,750) = $5,363 ?
If I sold a home and the capital gain is not taxable due to the 500 exemption for married filing jointly,,, Would I still need to report the gains on my return. Schedule D?
But what happens to all the depreciation you took on the rental house (years and years of it).
Is that taxed as ordinary income ?
How about stock dividends? Are they short or long term capital gain, or ordinary income?
THIS is exactly info I was looking for! I had never heard that long term capital gains was taxed differently than regular income, and I’ve been over stressing how to get part of my pre-tax into a Roth without going into upper level brackets. Can I assume long term rates will adjust in future when regular income brackets go up?
Roth conversions are considered ordinary income that will raise your taxable income. Maybe consider converting it over in small portions.
good stuff very helpful as we are selling some property. ON short term capital gains on the sell of real estate is that taxed as ordinary income if your AGI is less that 50k?. please help
This is a basic question but how do you know how much capital gains you have when you pull out money from your brokerage? Will you get a statement for each time or at the end of the year?
Hello James, if holding a stock longer than 1 year, and after that you sell, will be taxed at 15% long term capital gain. If sold in april 2024, with a sizable capital gain, do we need pay 15% taxes in this 2024 year or can wait till 2025 income tax filling ? will this incur a penalty tax?
At 7:38 you said long term gains wont push you into a higher bracket but right before you said whether its short term or long term it wont push you to next tax bracket no?
Also, if I could, are qualified dividends traded the same way as LTCG? thanks
If my wife and I have a 350000 capital gain from the property, can we 1031 exchange everything above 83k and take the 83k tax free?
What happens if i hold 100 stocks for over a year, then add 1 of the same stock for a total of 101, and few weeks later sell 1 stock. Do gains from this sell be long or short term or some fraction of both?
if 174 was your adjusted gross income because you add salary and capital gains, then why did you start at the lowest capital gains bracket
Example sake!
It is not clear to me, I am particularly confused by things said from 5:20 to 5:50 mark. So in the scenario discussed ($74k AGI and $100k LTCG); what would be federal income tax? And then what would be fedreal income tax in following scenarios 1) if someone has AGI of $83,349 and $100k LTCG 2) if someone has AGI of $83,351 and $100k LTCG
Then scenario 1) $1 will be not taxed (0%), and the remainder is taxed at 15%. Scenario 2) All $100,000 taxed at 15%
I'm assuming long term dividends also works the same in your capital gains example?
How can I become a certified financial planner?
Good stuff 👍👍
I read you can only deduct 3000 in losses. So if I win 40000 in the stock market and lose 30000 the same year. would I be taxed on 10000 or would I be taxed on 37000?
@root financial planners - Hello. I just want to clarify...if we converted 50k to a Roth, I understand that this will count towards our income for IRMAA but it doesn't count towards the income as far as the threshold for Roth contributions right? For instance, I am single and I think I can make up to 127k in 2022 if I want to contribute towards a Roth for 2022. As far as my actual income, I made about 35k from a part time job and I will have some capital gains from selling stocks but the 50k that I converted doesn't count towards the 127k max income to contribute to a Roth right? Thank you.
Great video.
I am basically in the 15% bracket for capital gains.
If I earn, say 85K per year, is the tax on my Capital Gains taxed at 2 different brackets.
Glad it was helpful!
yes, since 85k income would put you above the 0% bracket, you would have zero of your capital gains taxed at 0%, they would all be taxed at the higher bracket levels.
Seems like you didn't really explain capital gains stacking
Does anyone have the link to the IRS website that says the same thing for source reference?
Still confusing.
Now again im not sure.
So if i make 40k single, but i have 50k of long term gains.
Do i pay 0 on that whole 50k?
You pay 0% only on the first 7k ($47,025 - $40,000), then you pay 15% on the remaining 43k.
Good lord thank you very much sir! 🙏🏻
thanks for the video my question is for capital gain from 0 - 83,000 I will get tax 0%? and anything above 83,000 I get tax for 15%? I hoped this question make sense. please let me know. thanks.
Yes, assuming you're filing jointly and not single
What happened to the $40k LTCG Limit?
Excellent! Thanks
How does the high long term capital gain affect AMT?
Guess I’m the only one that thought you are taxed a set rate for a set amount
Where on the 1040 due you enter the 2 different amounts of taxation. One for income and the other for the long term capital gain. On the 1040 the agi is a combo of the 2 incomes and goes straight to standard deduction/itemized and less that amount is your taxable income. In your example you are taking deductions from regular income before adding the capital gain. Can't do that on form 1040. PLEASE ADD TO THIS VIDEO OR DO A SEPARATE ONE SHOWING HOW TO ADDRESS THE 1040 LONG HAND WITHOUT CALCULATORS. THANKS
Glad it was helpful!
You would just take your agi and subtract the capital gains amount from it. then subtract your standard or itemized deduction from that number, and that's the number you would use to determine your LTCG rate.
You need to take your taxable income and use the Qualified Dividends and Capital Gain Tax Worksheet For Line 16 which you can find in the 1040 instructions to figure out the amount you will actually owe. Do not use the Tax and Earned Income Credit Tables if you have capital gains or qualified dividends.
I'm going to go out on a limb and say it's rare to have $100k (long term capt gains) profit when selling an investment property and have zero depreciation recapture. 🤔
Lets say my AGI is $20K , so that means I can sell stocks and have a profit of LTCG of $21,675 ( total income of $41,675 ) and all my LTCG will be taxed at 0 right ? if I sell stock and profit $21,676 LTCG then I would have to pay 15% on that extra one dollar I went over the $41,675 threshold correct ? Do I have this right ?
Absolutely correct, assuming you're single
Does this mean you can start a business, pay yourself 35k a year and pay zero % on all long term capitol games
I should have sold rental property before I got to RMD land.
Wish I could like this vid twice
Yet more reasons to abolish the income tax and the IRS.
Can my loss in my business reduce my long term Capital gain?
So you said it cap gains affects agi? And you marked $76k as agi. Then added $100k to it and say tax rate is from ordinary income. So label each thing correctly - you messed up and misled everyone.
Look again at 4:25. He did not label $74K as AGI; he labeled it as “Taxable.”
Glad it was helpful!
Can dividend and interest income push into higher tax bracket ?
But what about short term capital gains?