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The tax rate for capital gains is 0% if your total taxable income is below $77,200 (if married filing jointly). But does "total taxable income" include capital gains, or not?

For example, suppose my other income sources total up to $70,000, and I also have $50,000 in capital gains. Which of the following descriptions is correct?

  • My total taxable income is less than $77,200, so the $50,000 in capital gains is untaxed.
  • My total taxable income is $120,000, which is above the $77,200 threshold, so I pay taxes on the capital gains.
Chris W. Rea
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mweiss
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2 Answers2

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All of your long-term capital gains are included in your gross income. Once you take your deductions (itemized or standard), what’s left is “taxable income”. Then there’s a worksheet to figure out how much of your “taxable income” is actually taxable; that’s where you get the adjustment for your long term capital gains. So, yes, long term capital gains are part of the “taxable income” that is used to determine the rate you pay on those gains.

I just went through this in TurboTax. It showed a “taxable income” of a bit over $40k and no tax due. I had to dig through the additional papers to find that worksheet to see that the result was right, because most of my income was LTCG.

Pete Becker
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As explained here, "total taxable income" includes all capital gains. But, not all of the capital gains are necessarily taxed.

In your example, the "first" $7,200 of your capital gains would not be taxed, because they would get your total income up to the $77,200 threshold where capital gains start to kick in. Only the remaining $42,800 would be subject to capital gains taxes.

tparker
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