I realize this question will only apply to some fortunate few, and I know I should consult a professional, but just seeking some information from anyone who can chime in, in the meantime.
The available info on the capital gains tax rate seems to me ambiguously worded, or easy to misinterpret. And various tax sites aren't very helpful. And this is a rare topic for the average tax payer.
Explanation #1:
What I read is that long term capital gains are taxed at 15% or 20% depending on the amount of the capital gain. The break point between those two rates kicks in at $430k of capital gain (for single filers). I.e. I interpret it to mean that you get taxed at 15% of your capital gain up to $430k, and 20% on the amount more than $430k. This is regardless of your ordinary earned income (i.e. W2 salary earnings), and makes sense just like how ordinary income tax brackets work.
Alternate explanation, #2:
But the confusing thing is that various internet tax sites say vague things that can be interpreted that the 15%/20% rate is tied to your ordinary earned "income" amount. You even see tables shown with this wording ("annual income"). As in, if you earn (W2 salary) more than $430k, then your capital gains (the entire amount!) are taxed at 20%.
This alternate reading #2 seems ridiculous to me, or would create a huge incentive not to earn more than $430k (salary, for example). So I think this can't be the right interpretation.
I'll try to find out more, but equally, I can't see where in IRS Schedule D + Capital Gains worksheet the long term capital gains flows through on a large (take for example, a LTCG of $2M). Where do you see the lines for the taxable amount of $2M? I just don't clearly see the lines where only the portion above $430k is taxed at 20%. So hence my confusion in being unable to locate the actual math that explains it.
Thanks for any suggestions!
Submitted December 27, 2020 at 02:54AM by kepler1 https://ift.tt/3hmInaN
