My minor child has a brokerage account containing long-term capital gains. Any stock that she sells will be her sole income for 2020. What is the maximum amount of long-term capital gain that she can have and pay zero federal income tax.
I have read 26 USC 1 (h) (1) (B) and tax form 8615, but they're convoluted.
This IRS page says it's $2200.
Where does the $2200 figure come from in the code? The standard deduction is $1100 in this scenario. What code section makes reference to the other $1100.
Secondly, Kiddies are taxed at the same rate as trusts. Ergo, zero to $2650 are taxed at 10%. But code section 1 (h) (1) (B) says that long-term cap gain are taxed at zero percent for those in a tax bracket under 25%. By this logic, the $1100 standard deduction plus the $2650 tax bracket limit implies to me that the $3750 ($1100 + %2650) should be taxed at zero for long-term cap gain. Where's the error in my logic?
From the linked IRS taxtopic article - "The unearned income of certain children is taxed using the tax brackets and rates for estates and trusts unless an election is made to calculate the child's tax based on the parent's tax rate."
The 'tax same as trust' was changed from being the only option to the above. As I worked on the 2019 return on TurboTax, there was an alert asking if I wanted to change my daughter (under 24 and in college) from the tax at trust rate to tax at parent rate. I clicked a button (to parent rate) and the tax due dropped a bit.
On 12/5/20 6:59 AM, JoeTaxpayer wrote: [SNIP]
The question was for tax year 2020. In 2020, there is no option. The Kiddie Tax uses the parents' rate. In 2018, it was estates and trusts rate. In 2019, the default was estates and trusts but you could make an election to use the parent's rate. Anyone who used estates and trusts in 2018 can amend that year and change it to the parents rate.
The law is in IRC Sec. 1(g). The income limitation for 2020 (amount subject to inflation) is $2200 as published in IRS Revenue Procedure
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