While the maximum capital gain tax rate can be as high as 23.8 percent, most taxpayers pay 15 percent. But there is the possibility to have your capital gains go tax-free; zero percent! In fact, this tax break has been around for more than a decade and comes into play more often than you may think. Here is what you should know:
Qualifying for the 0% capital gains rate
You qualify for preferential long-term gain treatment if you sell stocks, bonds or real estate (and other capital assets) you’ve owned longer than a year. For 2019, the zero percent rate applies to long-term capital gains for single taxpayers with taxable income up to $39,375 and married filing joint taxpayers up to $78,750. This often applies if you’re having a low income tax year due to:
- Temporary job loss
- A tax loss passed through to you from an S corporation or partnership
- Income fluctuation for a commission-based job
- Moving to part-time employment
Awareness is the key – While you may not typically have the zero capital gain tax rate available to you, it is important to note when it comes into play.
Here’s an example: Adam and Eve Johnson recently retire. They have a number of mutual funds they’ve owned for years and have retirement savings accounts. Their current income is $58,700. Should they withdraw money from a retirement account or sell some of their mutual funds? Because they’re aware of the zero percent capital gains, they decide to sell mutual funds with long-term capital gains of $20,000 this year to get the money tax free!
Consider your year-end tax moves – So, keep the zero percent capital gains rate in mind as the year winds down. Know your projected income for the year and depending on your situation, you might realize capital gains that are subject to no or lower tax rates. Remember other factors often come into play, including the taxability of Social Security Benefits, so contact us at BKC, CPAs, PC (908) 782-7900 if you would like a review of your situation.
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