Message Font: Serif | Sans-Serif
No. of Recommendations: 0
I was wondering if long-term capital gains count toward the overall determination of my tax bracket.

Hypothetical situation: Let's say I'm a student grossing about $14k a year, and my wife's not making much more than that. Let's say (hypothetically) I got lucky and invested in some things a few years ago I want to cash out of that have collectively made about $300k in gains. Now, those are all long-term gains, so I forfeit 20% of the gains to the U.S. and another 9.3% to California for the privilege of living here.

Now, here's my question. Suppose I also cash out of a few other things that have also appreciated, but I haven't yet held them a year. So I get taxed on 'em at the short term cap gains rate. The question is, are they taxed at my "regular" rate of 28%, or are they taxed at 39.6% because the long-term gains have shifted me into that tax bracket?

Frigging schedule D confuses the living daylights out of me, so I can't look to it for answers. Furthermore, I'm playing the above "what if" game with Quicken, and it says 39.6%, but I asked an accountant friend, and he says 28% -- plus 9.3% in state taxes, of course.

There's also another consequence I'm wondering about. I've already maxxed out my wife's and my Roth IRA contributions for 1999. However, what if by selling those long-term holdings, my income shoots to a level beyond which is legally allowed to contribute to a Roth IRA? Do I have to withdraw the money I put in for this year? Am I prohibited from contributing next year if my income returns to normal levels?

One more question, less related -- I was looking for a clarification of wash sales beyond what I've read in the excellent Motley Fool Investment Tax Guide. I understand that wash rules state that if I want to claim a loss, that I also must not have bought the stock for 30 days PRIOR to the sale that shows the loss. My question is, does this mean I cannot claim a loss if I hold a stock for less than 30 days? (Even if I never owned the stock prior to the purchase that yielded the loss?)

Thanks in advance for the answers... I really do love this board...
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.