For 2024, I’ll have both a short-term and a long-term capital gain. Let’s say my regular tax rate is 22%, and my long-term capital gains rate is 15%. When I add up both gains and report this total on my 1040, will the whole amount be taxed at my personal tax rate (22%)? Or does the lower rate (15%) apply somewhere specific on the form?
The Qualified Dividends and Capital Gain Worksheet is where you figure out the taxes for line 16 on the 1040.
Sam said:
The Qualified Dividends and Capital Gain Worksheet is where you figure out the taxes for line 16 on the 1040.
Got it… line 16 on the 1040 was the missing piece. Thanks for clearing that up!
@Emmy
One thing to keep in mind, if you can get your adjusted gross income down low enough, you might even pay 0% on long-term capital gains.
For example, I make around $105,000 a year, and my wife doesn’t work. With the standard deduction ($25,900) and deferring about $30k to a 403b, my adjusted gross income is below $89,400, which means long-term capital gains up to that amount are taxed at 0%.
@Kip
It’s actually your taxable income that determines this, not AGI. The standard deduction only lowers your taxable income, not AGI.
Nori said:
@Kip
It’s actually your taxable income that determines this, not AGI. The standard deduction only lowers your taxable income, not AGI.
I don’t itemize because I don’t have mortgage interest or other big deductions, so for me, it’s close to AGI. But yeah, taxable income is what matters for capital gains rates.
@Kip
The point is that capital gains tax is based on taxable income, not AGI. They’re different numbers on the 1040.
Nori said:
@Kip
The point is that capital gains tax is based on taxable income, not AGI. They’re different numbers on the 1040.
I get it, but for most people, especially if they don’t itemize, taxable income is going to be close to AGI. For the few who itemize, it could be different, but for a lot of folks, it’s basically the same.
Nori said:
@Kip
The point is that capital gains tax is based on taxable income, not AGI. They’re different numbers on the 1040.
AGI is adjusted gross income, and it’s not the number used to figure out capital gains tax. That’s taxable income.
The Qualified Dividends and Capital Gains Tax Worksheet is what you use to figure out the tax on line 15. You’ll find it on page 37 of the 2023 Form 1040 instructions.
If your line 15 amount includes gains taxed at 25% or 28%, then you’d use the Schedule D Tax Worksheet on pages D-16 and D-17 instead.
Thanks, everyone. I also found a related post discussing this on another forum here: https://www.forum.com/tax/comments/18l2bh2/how_capital_gains_tax_works_in_1040/
The tax software I use usually prints the Qualified Dividends and Capital Gain Worksheet, even though it doesn’t get submitted. It helps show how different income sources are stacked.