Hi all,I have two questions about the tax treatment of capital gains. I returned to school this year to complete a graduate degree, meaning that I have zero income for the year. However, I have about $100K in unrealized long-term capital gains that I am thinking of selling, partly because I think that my capital gains taxes would be lower given that I have no income. I'm unsure, though, about a few things regarding how the capital gains would be treated.I've read that your capital gains rate depends on your tax bracket - the 10 and 15 percent bracket has a zero percent rate for LT gains, and all other brackets have a 15% rate. I'm wondering, though, do the capital gains themselves raise one's tax bracket? Since I would have $100K in gains, would this bump me up to the 33% (or whatever) tax bracket, and thus raise my capital gains rate to 15%? Or are capital gains treated entirely separately from income, and my tax bracket would be the zero percent bracket?Along those lines, can I reduce my tax burden on capital gains the same way I would be able to with income, through charitable giving? In other words, if I have a capital gain of $100,000 and I give $25,000 to charity, can I deduct this from the capital gain so that I am only taxed on $75,000? Or are you only allowed to deduct from ordinary income?Thanks!
In other words, if I have a capital gain of $100,000 and I give $25,000 to charity, can I deduct this from the capital gain so that I am only taxed on $75,000? Or are you only allowed to deduct from ordinary income?If you're planning to give $25K to charity, and you still think the investment is a good investment, I'd probably wait until I had significant income, and then give the appreciated stock. (there is no capital gains on donated stock)At least I'm *assuming* that you're going to have significant income in a year or 3.Even if you don't want to wait, I'd still plan on giving the appreciated stock to the charity. It'll mean a little delay (3-5 business days in my experience) from when you tell your brokerage to transfer it to when they actually do the transfer. And that means the $ amount donated is not under your control completely. I'll let the experts address the questions you posed. (my expectation is cap gains income is still income)
Think of the dollars in your taxable income (line 43 of the 2012 form 1040) as a stacked bar. On the bottom of the bar is ordinary income. On top of this is unrecaptured Sec. 1250 capital gain. On top of this is, I believe, qualifying dividends. On top of this is any long term capital gains. And so on.So if your gross income is, say, $100,000 of LTCG, this will go on line 22 and assuming you have no above the line deductions, will also go on line 37/38. You'll then subtract your standard deduction and personal exemption for 2013 of $10,000, leaving $90,000 of taxable income. The first $36,250 of this will not be subject to tax as it is in the 15% bracket. The remaining $53,750 would be Fed taxed at 15%, or $8,062.50. You'd have to have a taxable income of $200,000 to go to the 20% rate.I'm in a bit of a rush so don't have time to double check my figures, but I believe this is correct.BruceM
I have a capital gain of $100,000 and I give $25,000 to charity, can I deduct this from the capital gain so that I am only taxed on $75,000? Donating appreciated stock held over a year to charity has the benefit that you don't pay taxes on the capital gains and the total amount is deductible.
You mentioned the capital gains are long term. I don't understand the need to realize the gains all at once?An inherited share of Berkshire Hathaway (BRK-A) from 18+ years might be the exception, so what's the urgency in taking all the gains in one year?
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