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Stephen G.
Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4046
Experience:  Extensive Experience with Tax, Financial & Estate Issues
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my marginal tax is 15% or less, the tax guides say that if

Resolved Question:

my marginal tax is 15% or less, the tax guides say that if this is true - a zero percent rate applies.

but I may sell $5,000,000 in real estate that is fully depreciated (= zero basis), so the entire $5,000,000 is a L T Capital gain.

I thought because my marginal rate was 15% or less I would have no tax to pay, but the software is still coming up with a big tax bill - why?
Submitted: 2 years ago.
Category: Tax
Expert:  Stephen G. replied 2 years ago.

Stephen E. Grizey :

Hi & thanks for using our service. I'll do my best to give you a complete & accurate answer. Please ask me to clarify anything you don't understand.


 

Stephen E. Grizey :

Because it is based upon your taxable income including the capital gain.


 

Customer:

The capital Gain is $5,000,000, so does this mean at the zero bracket for taxiable gains, I am still paying "regular" state and federal


income tax?


 


I though if the LT Gain was at zero tax, I would pay zero tax?

Stephen E. Grizey :

Let me get you an example of how it works.


 

Customer:

OK

Customer:

- filing Jnt, only $37 in int income, $39,740 of L12 Biz income, gross SS $41,124 (the Se Inc may be lower to stay below 2012' $70,700 limit for the 15% marginal bracket.


 


So assume the LTC gain was at this margin $0 tax - how do we get to a federal tax of about $760,000 or so?

Stephen E. Grizey :

Here's an example that shows how the taxable income is applied; you won't pay any tax on the amount of your capital gains that takes your taxable income up to the limit that applies.


 

Stephen E. Grizey :

http://www.bankrate.com/finance/taxes/no-capital-gains-due-for-some-investors-2.aspx


 

Customer:

OK - I am bring it up now for review

Stephen E. Grizey :

In regards XXXXX XXXXX question, you are going to pay a15% tax on your capital gains & a portion of your social security benefits will be taxable also.


 

Stephen E. Grizey :

The pages before & after that link are related also & the first page (before the link page) is confusing if read by itself & you could infer from the chart on that page that's there would be no tax on your $5,000,000. of capital gain; but when you read further, you can see it doesn't work that way.


 

Customer:

So, looking at the MargL cut-off rate of 15%, the zero income (per the example) is $69,000,


 


The if then if the cap gain was $5,000,000 very little of it is not taxed?


 


but may be taxed only once? either what ever the effective rate is in my exam 15% which is much less than the upper 35% marginal?


 


So the NO or lower cap gain rate really applies to very few, or for a very low ever of cap gains in any of the tax years it is effective for?


 


Gee........... I though the lower cap rate is how Warren B. and Mitt R. and other fat cats wind up paying no or nearly no tax becasue their


income are LTC gains?

Stephen E. Grizey :

You wouldn


 

Stephen E. Grizey :

You wouldn't pay any more than 15% on capital gains.


 

Stephen E. Grizey :

What Romney & "friends" are doing is completely different; they are basically turning what would normally be thought of as ordinary income into capital gains.


 

Customer:

so you get the tax break by capping the total tax rate to 15% for all the gains vs. the possible hier rates if the income had come in a differenct favor, as you said ordinary income which the rate would be much hier...Got it, err..I think.


 


Thank you

Stephen G., Sr Income Tax Expert
Category: Tax
Satisfied Customers: 4046
Experience: Extensive Experience with Tax, Financial & Estate Issues
Stephen G. and 7 other Tax Specialists are ready to help you

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