Examples of capital-gains tax – let’s use this as a marker in case the Trump plan goes through:
Dear Liz: We are in the lowest tax bracket. If we sell a capital gains asset worth several hundred thousand dollars, does that put us in a higher bracket and we pay 20% or do we remain in the lower bracket and pay 15%?
Answer: In the two lowest federal income tax brackets, the capital gains rate is actually zero. For a married couple filing jointly, taxable income below $18,550 in 2016 would put you in the 10% tax bracket, while income between $18,550 and $75,300 would put you in the 15% bracket. Both 10% and 15% income tax brackets pay no federal tax on long-term capital gains.
But capital gains count as income in determining your tax bracket. So a big capital gain can push you into a higher bracket, which means you would pay a higher capital gains rate.
Let’s say your normal taxable income is $75,000. You sell an asset with a $25,000 capital gain. Now you’re in the 25% tax bracket with taxable income between $75,300 and $151,900, which means your long-term capital gains rate will be 15%.
High-income taxpayers – those with taxable income above $466,950 – are in the 39.6 percent federal tax bracket, and pay a 20 percent long-term capital gains rate at the federal level, plus a 3.8% tax (in support of the Affordable Care Act for taxpayers with adjusted gross incomes over $250,000 for married couples and $200,000 for singles). The surtax is applied to the lesser of the taxpayer’s net investment income or the amounts over those limits.
It means a taxpayer at the highest federal tax bracket could pay as much as 37.1 percent — 23.8 percent federal plus 13.3 percent state — on a long-term capital gain in California.
There may be ways to alleviate or spread out the tax hit. You could sell losing investments to offset some or all of the gain. Another option for some assets is to sell a portion at a time over several years, or use an installment sale. A tax pro can walk you through your options.
http://www.latimes.com/business/la-fi-montalk-20160605-snap-htmlstory.html
Do you think the Trump tax plan will pass?
No. The realtor party is fighting it.
But, but…Trump and the GOP need a “win”!
From past experience, I think betting against Trump isn’t ever easy. I’d never do it with a relaxed smile on my face.
Questioner: You think Trump will pull this off?
Me: No way. (quickly looks behind him)
Q: You sure?
Me: Certainly. (takes a quick look under his desk)
Q: No offense, but you seem a little paranoid.
Me: Certainly not! I’m just concerned about anything going on behind me, or under my desk without my knowledge, is all.
Q: I notice you weren’t doing that before I asked you about Trump…
Me: Coincidence.
The typical scare tactic from the realtor party – can we see your math on the 10% price drops please? From the C.A.R. president:
Call for Action: Reform Our Tax Code AND Protect Middle Class Homeowners
As a REALTOR® you have no doubt heard about tax reform plans from Washington, DC. Now Congress is threatening tax incentives for homeowners, like the mortgage interest deduction and the state and local property tax deduction. These incentives are critical for a strong housing market that creates jobs and builds stable communities. Do not let tax reform become a tax increase for middle class homeowners.
Homeownership is the bedrock of our industry and we need to make sure any tax reform legislation protects middle class homeowners.
In a recent statement, C.A.R. President Geoff McIntosh said, “The tax reform proposed by the Republican leadership will eliminate the incentive for people to buy homes, shrink the middle class, and raise taxes on hundreds of thousands of California homeowners.
The doubling of the standard deduction, coupled with the elimination of state and local tax deductions, such as property taxes, will adversely impact California and its housing market. The average California homebuyer could end up paying $3,000 more a year in taxes under today’s proposal.
Did you know that American homeowners already pay 83% of all federal income taxes?
Did you know that some of the tax reforms under discussion could result in a drop of more than 10% in home values?
Did you know that after the 1986 Tax Reform Act property values in the commercial sector dropped significantly, negatively impacting state and local tax revenue?
Did you know that home-owning families with incomes from $50,000 to $200,000 could face average tax hikes of $815 in the year after enactment?
Tell Congress – Do not raise taxes on middle class homeowners in order to cut taxes for corporations. Share this Call to Action and use this hashtag on your social media accounts #SaveHomeOwnership
Nothing wrong with fighting fire with fire.
Sit back and enjoy the show, let’s see if CAR’s fuzzy math can torpedo Republican’s.
When the sale of even an “ordinary” California home can result in gains in the high six figures, installment sales start to look attractive by spreading the gain across several years and avoiding pushing the seller into an exorbitant tax bracket. Is this very common?
If the only reason people buy houses is the tax deduction, today they need to question their logic. I will admit in 1978 I bought a house partly because of the tax savings (with a 9.5% mortgage it thru off 4k of mortgage interest, and at 20k of income with a 2,200 standard deduction the mortgage and the property taxes did make a difference since the marginal rate rate above 18200 was 34% back then (it topped out at 70% above 108k for singles). So at that time the effective interest rate on the mortgage was more like 6.5% or so. Now with todays 4% mortgages and the 25% bracket it really only takes the rate down to 3%.
So I wonder if the realtors are stuck in a time warp thinking the 1979 tax rules still apply.
BTW on the realtor tax deduction issue, given someone in the 25% bracket who probably could only by a house in Ca in Brody or other Ghost towns. It raises the effective interest rate from 3 to 4%. So the question becomes what would the effect of a 1% mortgage interest increase be on home values. (Now in San Diego you better plug in the 33% or even 39% to get the mortgage in the first place which raise the effective interest rate by 1/3 or by about 1.4x for the higher bracket ) Note that if the increased standard deduction comes in only folks in the high cost areas will have deductions enough to itemize, so in one sense the increase in the standard deduction is designed to hit the areas that did not support Trump.
You think prop 13 is leading to reduced sales now?
How about if property taxes can no longer be deducted? Then the hit that a homeowner would take in moving to a home with higher prop taxes would be doubled – higher taxes PLUS no longer deductible. REALLY hard to move in the face of that?
> No. The realtor party is fighting it.
I’d feel more comfortable if the NRA were fighting it.
When the sale of even an “ordinary” California home can result in gains in the high six figures, installment sales start to look attractive by spreading the gain across several years and avoiding pushing the seller into an exorbitant tax bracket. Is this very common?
No, not yet. I’ve done a couple of them during the blog era, but they are rare because buyers are reluctant to pay a premium interest rate.