Are the LT capital gains tax rates based off gross income or AGI?

Question

Say a single filer has 2019 wages of $50,000 and LT capital gains of $10,000. Would I use $60,000 to determine my capital gains tax rate or $47,800 ($60,000 less the 2019 standard deduction)? I realize that both of these amounts would result in a 15% capital gains tax rate.

Answer 1

Hi Selina -

Capital gains taxes are computed from taxable income. There are three big steps to get to taxable income:

1) Sum up total income.

2) Subtract adjustments to income to get AGI.

3) Subtract the standard or itemized deduction (and the QBI deduction, if applicable) to get taxable income.

In this case, total income is $50,000 + $10,000 = $60,000. There are no adjustments to income, such as deductible IRA contributions, so the AGI is also $60,000. From there, subtract $12,200 for the 2019 standard deduction for taxable income of $47,800.

Taxable income is the starting pointing for the Qualified Dividends and Capital Gain Tax Worksheet, where the actual tax will be computed.

I hope that helps! For more personalized assistance, please click on my photo above to go to my profile, and then click on the "Contact Cindy" button.

Cindy