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In 2018, if I have capitol gains from selling a vacant

In 2018, if I...

In 2018, if I have capitol gains from selling a vacant portion of my yard, can I handle that tax separately from my regular income tax? As I see the rules, it seems that if I have regular taxable income of no more than $38,600 (after deductions), there will be no CG tax and if over $38,600, the CG tax will be 15% of the gain. I do not believe that I have to add the CG to my income in figuring the $38,600 boundary. Is that correct?

Accountant's Assistant: The Accountant will know how to help. Is there anything else the Accountant should be aware of?

Not that I am aware of.

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3/22/2018
Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,672
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
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Hi. …. My name’s Lane,

I hold a law degree (J.D.), with concentration in Tax Law, Estate law & Corporate law, an MBA in finance, a BBA, and CFP & CRPS (Chartered Retirement Plans Specialist) designations, as well - I’ve been providing financial, Social Security/Medicare, estate, corporate, non-profit, and tax advice, to clients on three continents, since 1986.

I’m reading your question now.

Bear with me a moment while I type up my response.

….

Then if you have further questions we can go from there.

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Customer reply replied 4 months ago
ok

It's important to note that under the tax new tax code, (and the existing code) although there was a small change where amounts are now specified rather then simply being a derivative of the underlying taxable income brackets -

...

That capital gains are a part OF our taxable income. (taxed differently,yes, but still being added to other income on the return to see where you are in that SEPARATE tax rate.

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The long-term capital gains tax rates of 0%, 15%, and 20% still apply.

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However, the way they are applied, again, has changed slightly. Under previous tax law, the 0% rate was applied to the two lowest tax brackets, the 15% rate was applied to the next four, and the 20% rate was applied to the top bracket.

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Under the Tax Cuts and Jobs Act, the three capital gains income thresholds don't match up perfectly with the tax brackets. Instead, they are applied to maximum taxable income levels, as follows:

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0% for taxable income (and remember your other income PLUS the gain make up taxable income) Up to $38,600 for a single filer and Up to $77,200 for a joint filer

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15% for taxable income between $38,600-$425,800 for a single filer and $77,200-$479,000 for a joint filer

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And 20% for taxable income Over $425,800 for a single filer and Over $479,000 for a joint filer.

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So lets say that you're a single filer and your other income is already at 38,600 ... the gain on top of that is taxed at 15%.

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Customer reply replied 4 months ago
Glad that I asked. I AM a single filer with projected 2018 taxable income just skating under the $38,600 boundary by about a thousand less ($37K and some change). If over, that $38,600 amount, I jump my regular income tax rate from 12% to 22%. As I understand your answer, I WILL have to add my regular taxable income and my capitol gains together and then be subject to the 15% for capitol gains and also the 22% for my other income. Is that what you intended to convey? It matters for arriving at the right asking price for my property. Thanks Kathleen
Customer reply replied 4 months ago
Are you still there?

That's exactly right. MANY read the 0% rate to apply across the board as if we look only at income OTHER than the gain to see what the capital gains rate is - not correct.

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But the rate IS still progressive.

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Meaning that your other income will be taxed at the zero (remember we now have a 12,000 standard deduction) then 10 then 12 % (until you get to that 38700 level -0 so a touch of that will be at 22.

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The the gain becasue you'd be above that now, will be taxed at 15

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Make sense?

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Customer reply replied 4 months ago
Final clarification? (I hope)I am recently retired. My total income for 2018 is very predictable. As I said, it will be $37K and change. However, I am looking at selling a portion of my large yard to the neighbor. I will have to pay capitol gains on the amount that the property has appreciated since I purchased it in 1999. I believe that you have informed me that I will have to pay the 15% gains tax on the capital gains from the property sale. It seems that you are also saying that it will nudge me into the higher 22% bracket for the remainder of regular income. I seem to be asking the same thing, but no it does not seem to make sense that there is such a penalty. Kathleen

I think that we're close here.

...

that 22% will only apply the the amount of NON-capital gain income over 37K

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bear with me a sec and I'll show you the numbers

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in 2018, a single filer is exempt on the first 12,000 of income.

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Then the next 9525 is at 10%

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so 37000 - 12000 = 25000 of TAXABLE income.

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the first 9525 of that is at 10%

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SO now we've used up 9525 of that 25000 of taxable income

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the rest of the taxable income, before the gain, is now taxed - (25000 - 9525) = 15475 - at 12%.

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Now comes the gain. SOME of it will be taxed at zero, becasue you are still in the 12% bracket for the income that's already there, but depending on the size of the gain ...

if it takes your TAXABLE income above 37K THEN that remainder of the gain will be taxed at 15%

...

How much is the gain?

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Customer reply replied 4 months ago
I will go back and read through all of your answer but problem is, I said, at one point, taxable income. I had already subtracted $12 K from the total amount that I will receive for regular income.

OK then now it look like this:

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  • first 9525 is at 10%
  • next 9,526 to $38,700 is at 12%
  • Capital gain on top of that is a 15%
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The "change" of taxable income that's over 37000 is the ONLY thing that's taxed at 22%

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sorry for the bad assumption (MOST don't know that taxable income is a very specific term as it relates to the brackets).\

...

Your speaking in those terms makes this quite simple (and the coincidence that YOUR taxable income without the gain is right at the place where ORDINARY income would be taxed at 22 and the gain at 15)

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Customer reply replied 4 months ago
Here are the figures...Gross regular projected income: 49,745Gain in value of land to be sold (current property tax valuation minus 1999 propterty tax valuation): 20,935Actual gain will be somewhat more, as I am hoping to capture most/all of the capital gains taxation in the sale price, that is, asking the current value of the land plus the amount that it will add to my tax bill. I am thinking that will add about 4-5 K to the asking price and therefore to the gain (I have to pay 9% to the state for taxes...that part is clear, and so that is why the higher amount is being added.

49745 - 12000 = 37745

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first 9525 is at 10%

next 29174 is at 12%

725 or so of capital gain is at zero, rest is at 15%

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Your tax bill given your numbers will be.

(9525 x .1) + (29174 x .12) + 15% on the gain.

...

The gain going into the place where it's taxed at 15%, (because total taxable income is now at 22%) Does NOT make that original income taxed at 22 - this is still progressive system.

Lane
Lane, JD, CFP, MBA, CRPS
Category: Tax
Satisfied Customers: 14,672
Experience: Law Degree, specialization in Tax Law and Corporate Law, CFP and MBA, Providing Financial & Tax advice since 1986
Verified
Lane and 87 other Tax Specialists are ready to help you
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Customer reply replied 4 months ago
Thanks, ***** ***** a lot! I thought that when you crossed that 38,600 threshold, the whole thing was taxed at 22%. Now it makes more sense and seems more fair. I also know to calculate that most of my profit from sale of my side yard would be subject to the capitol gains tax. Kathleen

Yep - glad I could help.

...

Thank you for the rating

...

Lane

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