0% Long Term Capital Gains Tax--Is it Legit?

0% Long Term Capital Gains Tax--Is it Legit?

How long term capital gains are taxed is a source of confusion for many. Some of the questions I've heard--

Can long-term capital gains put me in a higher tax bracket for ordinary income?
Does my ordinary income affect my capital gains tax?
Is there really a 0% tax bracket for long term capital gains and how does it work.

To be clear, I am not a tax professional. I have spent a lot of time study this issue, particularly as I enter retirement with much lower ordinary income.

In this video we'll look at the mechanics of long term capital gains tax, including how to works with ordinary income and deductions. We'll also cover something called the bump zones, where ordinary income can push us into higher long term capital gains tax rates.

We'll cover three tax planning strategies in retirement and how long term capital gains tax can help us pay less in taxes.

Resources mentioned in this video:

Tools & Resources

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ABOUT ME

While still working as a trial attorney in the securities field, I started writing about personal finance and investing In 2007. In 2013 I started the Doughroller Money Podcast, which has been downloaded millions of times. Today I'm the Deputy Editor of Forbes Advisor, managing a growing team of editors and writers that produce content to help readers make the most of their money.

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DISCLAIMER: I am not a financial adviser. These videos are for educational purposes only. Investing of any kind involves risk. Your investment and other financial decisions are solely your responsibility. It is imperative that you conduct your own research and seek professional advice as necessary. I am merely sharing my opinions.

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[BSGamingTeam]

@3:09 slight inaccuracy. You are taxed 0% if your taxable income+gains is under 40400 Not 40400 in capital gains

[eliasybarra]

This video couldn’t have come at a better time… A friend and I were just discussing this and you made it super easy to follow 🙂

[matthewharrigan]

I didn't know that the "bump zone" could effectively have a 27% marginal rate. Thanks for continuing to teach me. Good video.

[carsonc]

Finally! Thank you for explaining this well!

[paulwu]

An excellent episode in explaining the LT capital gains.

[Laurar]

Great information... it confirms my initial thoughts and understanding on how the LT gains and ordinary income are treated for taxes as we approach early retirement. However the bump zone was new to me so glad you mentioned it. We will have dividend and cap. Gains income as well as a pension .. so plans are to watch that income level of 80.8k as we do Roth conversions prior to FRA. 👍😊

[anunexpectedfire]

What a great video. You answered a question I have been having and gave me some additional things to read up on. I may rework this video for my own situation and possible FIRE strategy. It should all apply, but the ordinary income and bump zones are need more thinking through.

[brianwhite]

Wonderful explanation, thanks. And in my case, using social security benefit (50%) as the ordinary income, and keeping in mind that the tax rate of the social security benefit may increase, as well as the capital gains tax, at it's bump level.

[ShamileII]

Great video Rob! As the old phrase goes...."it's not how much you make...but how much you keep"
Keep up the great work!

[vinylEarthlink]

This was a very good video - most people don't understand how divs and cap gains stack on top of ordinary income.
One important little bit that very few people know is that if you are over the $200/250K limit, you can reduce your investment income subject to the 3.8% Medicare tax by backing out the amount paid on that in state and local income tax. This has nothing to do with itemized deductions of state and local income tax, but is applied directly to amount taxed as an adjustment on the form. You would typically take your entire state and local income tax, allocate it over your income, and calculate the percentage that applies to the amounts over $200/250K.

[wambatjoe]

Very interesting. The other thing is the AMT which makes everything even more complex

[kishormistry]

Bob it would be great if you do video on Medicare, you will be helping lot of seniors including myself which is very complicated!!! TIA

[JoeKoppel]

Hi Rob, great videos, Thanks. Can you do a video about how to get out of 529 accounts? My 3 kids are grown and I would like to get the money out and set up Roth accounts for them.

[Scott]

For tax consultation, will a garden variety CPA suffice? Do they charge by the hour in that instance?

[stevenmorris]

Since it looks like you take video ideas from comments and not the D.R. group, can you do a video on how to drawdown?

Specifically, if you have several funds in your portfolio, how are you pulling the 4%? Is it purely depleting from your top gainer, so you don't touch the other funds? Is it 4% from each fund, so if you have a 3 fund portfolio you are pulling 4% from each to make the total 4%? Something else entirely?

Would really like to see this explained as I don't think anyone has ever taken a dive on How to do it, besides just saying "follow the 4% rule." Thanks.

[TuxedoToledo]

Hey Rob! Good to see the new iteration of your content. What are you using to record the chart drawing on your videos? Sorry, I came for the finance but I'm curious about this. Thanks.

[TheZrpilot]

Like your style... Just found your channel.. Sub'bed Thanks!

[danielyang]

The tax- gain harvesting scenario sounds good, but however, is not that practical. If one household of four AGI has less than $80K, they are almost in poverty line, how could they have extra money for stock investment in the first place?
Just a thought.

[toddpick]

There shouldnt be a Capital gains tax. Seriously Government taxes you on income. What you do after the fact isnt there business nor is it there money, they took no risk they wont prop up your loss so fuck them..