Zero Tax on Capital Gain

Today TaxMama® hears from Mazyar in the TaxQuips Forum with a good question. “I am planning for 2012 tax and am trying to find out what would be the maximum long-term capital gain I can have in order to still have it taxed at 0%. I use the Schedule D Tax Worksheet and enter the required information. To make the matter as simple as possible I assume that there is no short-term gain, no dividends and enter zero values for most of the lines. There are only three values I enter: (see the post for details)

Considering the simplified scenario, I think the max is (70700 less taxable income) and should match the value in Line 20 on the worksheet. Am I wrong?”

Dear Mazyar,

That’s a good question. And I am so glad you’re doing your planning early enough in the year to take advantage of this low rate. Odds are, when the 0% and 15% rates expire on 12/31/12, Congress will not extend it. So it IS a good idea for folks to start cashing in on capital gains this year.

Essentially, as long as your income, not including the capital gains, falls into the 15% tax bracket or below, your capital gains should be taxed at zero for 2012.

You don’t say if you’re single or married or head of household – and that determines your tax bracket. However, you can look up the limits on the 15% rate right here, at the SMBIZ site. Of course, if you were looking at $70,700, then I’m going to guess that you are married – and that is the correct limit.  You’ve got the right idea.

Just to be sure, DO test the computation in a live tax program. Other things might come into play, like Alternative Minimum Taxes. And there might be an effect on your adjusted gross income that could affect your itemized deductions, if you have any, tax credits, etc.

And remember, you can find answers to all kinds of questions about tax planning, and other tax issues, free. Where? Where else? At www.TaxMama.com.

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