30 THE QUEENS COURIER • AUGUST 9, 2018 FOR BREAKING NEWS VISIT WWW.QNS.COM
Taxation of Capital Gains
BY JOHN SAVIGNANO, CPA
Long-term gains still get favorable
rates. Profits from the sale or
exchange of capital assets held for
more than a year are taxed at 0%,
15% or 20%.
But figuring the rates is a bit
more complex. It used to be based
on your tax bracket. Prior to
2018, the 0% rate applied to taxpayers
in the 10% or 15% income
tax bracket, the 20% rate hit filers
in the 39.6% top bracket, and
the 15% rate was for people who
landed in the other brackets.
Now, your capital gains tax rate
is based on set income thresholds,
which will be adjusted annually
for inflation. For 2018, the 0%
rate applies to taxpayers with
taxable income under $38,600
on single returns and $77,200
on joint returns. The 20% rate
starts at $425,800 for singles and
$479,000 for jointly filed returns.
The 15% rate is for filers with taxable
incomes between the 0% and
20% break points.
Don’t forget about the 3.8% surtax
on net investment income
of singles with modified AGIs
over $200,000 and couples over
$250,000. It’s due on the smaller
of net investment income or the
excess of modified AGI over these
set amounts.
We’re hearing lots of talk lately
about indexing capital gains
for inflation. This intriguing
concept, which has been bandied
about for decades is gaining
steam under Donald Trump’s
presidency. Powerful, conservative
free-market lobbying groups
are urging Congress and the president
to act on the notion. The
idea is being considered in the
halls of Congress.
This is how capital gains indexing
would work: Essentially, taxpayers
would be able to increase
their tax basis in capital assets by
the rate of inflation between the
purchase date and the time of sale.
Say you bought stock in early
2008 for $20,000 and sold it for
$35,000 in early 2018. Using a
common inflation measure,
your original basis would jump
to $34,227. Absent indexing,
you’d have a $15,000 capital gain
($35,000-$20,000). With indexing,
your gain is $11,773 ($35,000-
$23,227), thus lowering your tax
bill. Most proposals would not
permit inflation indexing to create
or expand a capital loss.
It may sound simple but it’s
not. Critics point out lots of complexities:
Choosing the appropriate
price index. Tax basis isn’t
always static for investments that
you hold…think reinvested dividends…
so the calculation to
adjust to inflation can get tricky.
Indexing capital gains would
add to the already massive federal
deficit. And it would benefit
mainly higher-income individuals…
a politically thorny problem.
John Savignano is a partner
with Savignano Accountants &
Advisors located at 47-46 Vernon
Blvd., Second Floor, in Long Island
City. If you have any questions
or require additional information,
please call John at 718-707-0955.
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Co-Author of the
best selling book
“Breaking the Tax Code”
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Salvatore P. Candela, EA, ATA, ABA
Enrolled Agent - Tax Advisor
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