Long Term Capital Gains Tax Rate

cuegis

LoanSafe Member
Jul 19, 2010
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I purchased my NYC coop in 1991 for $100,000 and will sell it next month (in 2016) for $1.6

This is the exact quote from the IRS.

"The Taxpayer Relief Act of 2012 was now made permanent and will apply in 2016 and beyond"

These are the tax rates for Long Term Capital Gains


"If you’re in the 10% to 15% tax bracket, your capital gains tax rate is zero.
If you’re in the 25% to 35% tax bracket, your capital gains tax rate is 15%.
If you’re in the 39.6% tax bracket, your capital gains tax rate is 20%."

My ordinary income in 2016 will be in the 10% tax bracket so the LTCG(ain) will be 0%
This is word for word from the IRS directly.
 
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Moe Bedard

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Congratulations! That is GREAT news cuegis. What's your plans with your new found wealth?
 

cuegis

LoanSafe Member
Jul 19, 2010
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Ironically....
I have been reading this over and over, both on the IRS website, as well as dozens, or much more, websites for weeks now.
No matter where I look, I keep reading the exact same quote, word for word everywhere.....

It has gotten to the point where I simply do not believe it and I am trying to find someplace or someone to tell me that I am wrong for some reason, and I'm reading, or interpreting it incorrectly.

That was one of the reasons I wrote here. I was looking for someone to show me that I am wrong in some way but, there you have it and I just do not believe it. Let me know if you hear a different interpretation of this..
I don't WANT you to but I just feel I must be missing something.
 

Moe Bedard

Call 1-800-779-4547
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OK, I see and I do not blame you one bit. Based on what I have read and our interaction before, I agree that you are most likely right. Have you spoke with a CPA or maybe search online for a CPA Q & A forum?
 

cuegis

LoanSafe Member
Jul 19, 2010
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Yes...I have been pretty obsessive/compulsive about this whole thing...I have googled to the ends of the earth to every tax and law related sites and over and over I keep seeing the same thing.
It is either this..."
"If you’re in the 10% to 15% tax bracket, your capital gains tax rate is zero.
If you’re in the 25% to 35% tax bracket, your capital gains tax rate is 15%.
If you’re in the 39.6% tax bracket, your capital gains tax rate is 20%."

OR this...
If you're in the 10% or 15% tax bracket for ordinary income, then your long-term capital gains rate is 0%. If you're in the 25%, 28%, 33%, or 35% tax bracket, then your long-term capital gains rate is 15%. If you're in the 39.6% tax bracket, then your long-term capital gains rate is 20%.Aug 16, 2015
Long-Term Capital Gains Tax Rates in 2015 - The Motley Fool
www.fool.com/.../taxes/.../long-term-capital-gains-tax-rates...The Motley Fool

Or This

Qualified dividend and long-term capital gain: Tax rate is 0% for the 10%–15% brackets; 15% for the 25%–35% brackets; and 20% for the 39.6% bracket.



"How much capital gains tax will I owe?
If you are in a lower income tax bracket, you may not owe any tax on your long-term capital gain.
For taxpayers in the 10% or 15% ordinary tax rate bracket, the capital gains rate is zero."

Am I losing my mind or have I lost the ability to read?
 

bankwhipped

LoanSafe Member
Apr 11, 2011
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Florida
Yes...I have been pretty obsessive/compulsive about this whole thing...I have googled to the ends of the earth to every tax and law related sites and over and over I keep seeing the same thing.
It is either this..."
"If you’re in the 10% to 15% tax bracket, your capital gains tax rate is zero.
If you’re in the 25% to 35% tax bracket, your capital gains tax rate is 15%.
If you’re in the 39.6% tax bracket, your capital gains tax rate is 20%."

OR this...
If you're in the 10% or 15% tax bracket for ordinary income, then your long-term capital gains rate is 0%. If you're in the 25%, 28%, 33%, or 35% tax bracket, then your long-term capital gains rate is 15%. If you're in the 39.6% tax bracket, then your long-term capital gains rate is 20%.Aug 16, 2015
Long-Term Capital Gains Tax Rates in 2015 - The Motley Fool
www.fool.com/.../taxes/.../long-term-capital-gains-tax-rates...The Motley Fool

Or This

Qualified dividend and long-term capital gain: Tax rate is 0% for the 10%–15% brackets; 15% for the 25%–35% brackets; and 20% for the 39.6% bracket.



"How much capital gains tax will I owe?
If you are in a lower income tax bracket, you may not owe any tax on your long-term capital gain.
For taxpayers in the 10% or 15% ordinary tax rate bracket, the capital gains rate is zero."

Am I losing my mind or have I lost the ability to read?
I also have tried to get a clear understanding of this and have not had much success.
I believe that you will owe tax because I believe that you have to take into account your capitol gain amount
and add that to your ordinary income in order to determine your tax rate.
In another words, the correct question to ask IRS is "is my tax bracket determined by my ordinary income alone or do I have to add the capitol gain amount to my ordinary income in order to determine my tax bracket"

I also thought that I would have 0 tax due on an 80k profit but after reading the following I am worried that I will have a tax bill of over 10k., I hope I am wrong but afraid I might not be.

Long-term capital gains (LTCGs) are a separate rate you pay on investment property you have held for at least 1 year + 1 day. While they are taxed separately, the rate is dependent on your ordinary income tax bracket. If your tax bracket including the gain is 10% or 15%, then your LTCG rate is zero. If your gains push you into the 25%, 28%, 33%, or 35% tax bracket, you will pay 15% on the gains. Beyond that, you will pay the top LTCG rate of 20%.

and this,

I believe the question you're asking is if capital gains affect your tax bracket. Capital gains, are counted with your adjusted gross income, which then affects your tax bracket. HOWEVER, capital gains are taxed differently. But to answer your question, they do affect your tax bracket.
 

Annie Mac

LoanSafe Member
Aug 19, 2011
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My understanding is it is stepped, just as bankwhipped explained.. Your capital gains is added to your ordinary income to create your total income. So, that amount of capital gain will put you in a higher bracket, but the good news, you get a break on zero tax up to the ceiling for 15% income. Look up the ceilings for each of the categories...what the ceiling is for 15% income in 2016, you pay no tax on, then you will be paying a considerable percentage on the rest. There will be capital gains tax most likely for both federal and state. I am no tax professional, but I had to figure this once, and it is mysterious for normal folk, because the people in those upper brackets of dealing, know alot about how to do it.
You will be creating a base of what you have put into the property, so collect those details, improvement costs, etc. That will be deducted from your actual sales price to create the amount of your capital gain.
Keep good records this year of expenses. Hire a professional, because you can deduct it. Make contributions which are deductible. It won't make much of a dent in that amount, but every little bit adds up. The legal fees which you incur in creating your income are also deductible, so all of those costs in the sale are likewise deductible on itemized deductions. Good luck.
 

cuegis

LoanSafe Member
Jul 19, 2010
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My understanding is it is stepped, just as bankwhipped explained.. Your capital gains is added to your ordinary income to create your total income. So, that amount of capital gain will put you in a higher bracket, but the good news, you get a break on zero tax up to the ceiling for 15% income. Look up the ceilings for each of the categories...what the ceiling is for 15% income in 2016, you pay no tax on, then you will be paying a considerable percentage on the rest. There will be capital gains tax most likely for both federal and state. I am no tax professional, but I had to figure this once, and it is mysterious for normal folk, because the people in those upper brackets of dealing, know alot about how to do it.

Hi,,
The language on the IRS site (and everywhere else) seems SO clear. It's like there is no other way to interpret it.
It clearly says that the "Tax Bracket of "Ordinary Income"" is what determines the tax rate to be paid on LTCGains.
"If you are in the 10% or 15% tax bracket for "ORDINARY INCOME" then your tax rate for LTCGains is 0%"

In absolute numbers I paid $100,000 in 1991 and will sell it for about $1.6 in 2016.

In my favor, I have the $250,000 deduction for a single person that everyone gets.
I also have a $425,000 capital loss carry forward that I have been carrying forward every year until the day comes when I have a large Capital Gain, which is now.
That already is a rise in my basis to $675,000.
Then, since it is a coop, not only any improvements that were made on my own individual apartment raises my basis price but, any money that I paid over the past 25 years for renovations etc. to the ENTIRE building also raises my basis price even higher.
It seems like I can get my basis price close to $1 million.

The only problem I have is that for things like renovations done 20+ years ago,and other things, I have lost alot of the receipts and records for these things.....

I am hoping that I can put down a number on my return that would be considered "typical and customary" for improvements on a $1.6 million home without having many of the records from 20+ years ago.
 

cuegis

LoanSafe Member
Jul 19, 2010
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I finally spoke to an accountant and he told me YES.
1- For FEDERAL taxes, if you are in the bottom 2 tax brackets for "Ordinary Income" (10% or 15%) then your tax rate for Long Term Capital Gains is 0%

2- But, that is FEDERAL. So, I will owe 0% on my Federal taxes BUT, depending on which State you live in it is taxed differently.
In my case, a NY State resident, the long term capital gains will be taxed at the "ordinary income" rate in NY State which is 8.8%

3 - So NO Federal taxes due but 8.8% due on the net gain.

Even though I bought my home 25 years ago for $100,000 and I am selling it for $1.4.....I have a whole bunch of items to bring my "basis" up to $1 million or more.

I have the standard $250,000 deduction for a home sale.
I have a long term capital loss of $450,000 that I have been carrying forward every year until I finally get a gain to use it against.
I have 25 years of co op renovations and expenses that I have to share in my percentage of as if it were a house that I did renovations on.

That averages out to about $10,000 per year for 25 years ($250,000)

Then I have any improvements I made on my individual apartment over 25 years (lets say $100,000 to be safe).

So, you add all of that together and it brings my "basis" up from $100,000 to around $1,050,000.

Subtract that from the sale price of $1.4 and you are left with a $350,000 profit that is taxed as ordinary income ONLY in NY State taxes of 8.8%........($350,000 gain x 8.8% = $30,800).

If this is accurate then I will be paying $30,800 on a $1.3 million long Term Capital Gain. Says the accountant.
 

bankwhipped

LoanSafe Member
Apr 11, 2011
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Florida
I would check with at least 2 other accountants, I think he is wrong or maybe he does not realize that the capitol gain amount is going to kick you into a higher tax bracket. Just like the IRS, I have found that accountants will also give different answers to the same question.
It is a large amount and I would make sure of what the rules are to avoid a surprise at tax time. Make sure he understands how high of a capitol gain you are talking about. also, if you had taken depreciation, you will need to recapture that & pay tax at your normal tax rate
on any recaptured amount.
 
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cuegis

LoanSafe Member
Jul 19, 2010
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"Calculating the tax
Once you know the amount of the gain, you need to know the tax rates that apply. Three different rates exist on long-term capital gains, and which one is right for you depends on what tax bracket you're in:

If you're in the 10% or 15% tax bracket for ordinary income, then your long-term capital gains rate is 0%."


I have googled hundreds of sites, most notably the IRS site, and , word for word, this is what they all say!

Again, this is for FEDERAL taxes.

Each state has it's own rules. There are something like 20+ states with no LT Capital Gains Taxes. NY is not one of them.

LT Gains are taxed in NY at the "ordinary income rate" which is a maximum of 8.8%.

Even if everything I copied was not true....in my unusual case, I have a LONG list of items that will raise my basis to cover at least 80% of the gain anyway. So I would only be taxed on 20% of what I made.
THAT is not in dispute.

There is NO dispute that you get a $250,000 writeoff on the sale of your home as a single person.
And, since a co op is simply shares of stock in a corporation....if I lost $450,000 several years ago and have been carrying it forward every year. A $450,000 loss negates a $450,000 gain.
Right there is $700,000.
Then, a coop allows you to count as a capital improvement (which raises your basis) anything that was done to improve the building.

In addition to this, any capital improvements that you make on your own,individual home, also raises the basis.
If I buy a house for $400,000 for example, and I put in a pool for $100,000.the cost of my house is now $500,000 so when I sell it (if it is for a profit), the capital gain is now $100,000 less.
 

cuegis

LoanSafe Member
Jul 19, 2010
139
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I would check with at least 2 other accountants, I think he is wrong or maybe he does not realize that the capitol gain amount is going to kick you into a higher tax bracket. Just like the IRS, I have found that accountants will also give different answers to the same question.
It is a large amount and I would make sure of what the rules are to avoid a surprise at tax time. Make sure he understands how high of a capitol gain you are talking about. also, if you had taken depreciation, you will need to recapture that & pay tax at your normal tax rate
on any recaptured amount.
I never took any depreciation.
 

cuegis

LoanSafe Member
Jul 19, 2010
139
6
18
I would check with at least 2 other accountants, I think he is wrong or maybe he does not realize that the capitol gain amount is going to kick you into a higher tax bracket. Just like the IRS, I have found that accountants will also give different answers to the same question.
It is a large amount and I would make sure of what the rules are to avoid a surprise at tax time. Make sure he understands how high of a capitol gain you are talking about. also, if you had taken depreciation, you will need to recapture that & pay tax at your normal tax rate
on any recaptured amount.
Hi,
Maybe I'm totally wrong. I'm just guessing here but....it is hard for anyone to make sense of someone who made a $1.3 LT capital Gain whilee ALSO earning so little in "ordinary income" to put them in the lowest tax bracket of 10%.

On it's face, it just dosn't sound right!