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Author: Bob78164 Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121114  
Subject: Re: is long term cap gains income? Date: 4/23/2005 10:36 PM
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lorenzo2 writes (in part):

No. Just 15%, or $7.50.

I reply:

Actually, this may or may not be correct. If ImCalvin is in a phase-out range for one or more deductions, then the extra AGI will increase the phase-out, thereby decreasing deductions, increasing taxable income, and increasing tax.

For example, for sufficiently high AGIs, many itemized deductions phase out at the rate of 3%. And medical deductions always need to surpass a floor of 7.5% of AGI. Therefore, it's possible that an additional $1000 of long-term capital gains could decrease itemized deductions by $105, yielding additional tax (at the 25% marginal rate) of $150 + $26.25 = $176.25, for an effective marginal tax rate (applied to long-term capital gains) of 17.625%.

There are many possible phase-outs that may be implicated (not to mention the possibility that AMT may be triggered), so the only way to know in advance is to run some estimated numbers. If the potential gain is significant, I strongly recommend that ImCalvin do so, so that he won't be caught short at tax time. --Bob
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