WILL YOU PAY CAPITAL GAIN RATES WHEN YOU SELL?
It’s a fact: if you sell capital property like your home or stocks at a gain, you’ll have to pay capital gains taxes.
But the more you know about capital gains, the more you can anticipate the right tax rate and plan accordingly. Here are some applications where long-term capital gain (“LTCG”) rates will be factored in when you sell:
• If you sell capital property that you’ve held more than a year, including investments in mutual funds, more favorable capital gains rates apply. Gains on sales of stock that the fund held more than one year are usually paid out to investors – this is referred to as a Capital Gain Distribution or “CGD”.
• Qualified dividends or “QD” include all dividends paid by domestic and qualified foreign corporations that meet certain requirements, with the exception of dividends paid from stock options, real estate investment trusts “REIT”s, tax-exempt companies and savings or money market accounts.
• Also, if you sell your house, any gain that exceeds the $250K single filer/$500K married filer main residence gain exclusion is taxed at capital gains rates.
Bear in mind that sales of capital assets that were held less than a year (short-term capital gains) are taxed at ordinary income rates.
The Net Investment Income Tax Also May Apply
We know you might not think you are, but the government considers high-income earners as those who file $200K single/$250K joint file. If you’re in this bracket, you may have to pay 3.8% Medicare tax or Net Investment Income Tax —“NIIT” in addition to regular and capital gains rates.
How Will My State Apply Capital Gains Rates?
Most states, such as New York, do not have reduced capital gain rates and therefore tax LTCG at ordinary income rates.
Example:
A two wage-earner married couple with two kids have total salaries of $115,000 and itemized deductions of $35,100. Total ordinary taxable income is $63,900.
In addition, they have LTCG of $12,000 generated from sales of stock. The first $11,000 of LTCG ($74,900, the max 15% bracket income less $63,900) will be taxed at 0% with the remainder of $1,000 taxed at 15%.
Calculating capital gains can be tricky, but with the right guidance, you’ll be able to plan accordingly. Contact Victor C. Belgiorno at 516-861-3704 or or Bob Jahelka at 516-861-3707 or to find out more about capital gains today.
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