How do I figure my tax bracket for long term capital gain?

Question

I'm trying to figure out if my long term capital gain is taxed at 5% or 15%. Do I include the gain into my gross income? If I include the gain in my gross income I'd be in the 25% bracket and have to pay 15% on the gain, but if I don't include the gain in my gross income I'd be in15% bracket and pay 5% on the gain. It seems I should figure out what bracket I'm in without including the gain to figure out what I should pay on the gain. Otherwise I'd be paying captial gains tax and regular income tax on the gain.

Answer 1

The capital gain itself must be included in taxable income for the purpose of determining your tax bracket. There aren't any indications in the IRS publications/instructions that capital gains should be excluded from taxable income for tax calculation purposes.

If you are preparing your own return, it might be helpful to fill out the Capital Gain Tax Worksheet to verify the tax for your particular situation. You can find the worksheet on Page 38 of the 2006 1040 instructions (second link below). Good luck! :-)

Answer 2

No, you have to include the capital gain when determining your tax bracket for purposes of deciding which percent you'll actually pay on the capital gains. You don't actually end up paying the higher rate on the capital gains part - it gets subtracted back out when doing the calculations.

Answer 3

Your tax bracket is on your taxable income, not gross income. So it is your gross income, less your deductions (standard or itemized) and exemptions. Your taxable income would include the gain.

Answer 4

yes include the gain. your long term capital gain will be taxed at 15%.