tax rate for long-term capital gain

Do not rely on Wikipedia for anything important such as how much you owe for income taxes.

Most long term capital gains are taxed at a maximum rate of 20%. Long term capital gains classified as unrecaptured Section 1250 gains are taxed at a maximum rate of 25%. Long term capital gains on items classified as collectables are taxed at a maximum rate of 28%.

I assume you mean the worksheet on page D-14 of the 2011 instructions for Schedule D. If you are getting a result that suggests your long term capital gains are being taxed at more than the above, then you are almost certainly making an error when completing the worksheet unless you have unrecaptured Section 1250 gains or gains on collectibles.

And don't rely on this post either. Long term capital gains are taxed at a maximum rate of 15%, not 20%.

Ira Smilovitz

Well, a maximum NOMINAL rate of 15%, anyways :)

The experienced marginal rate can be significantly higher.

For example, you have someone who itemizes, has medical deductions in excess of 7.5% of their AGI, and who collects social security and has some SS benefits subject to tax.

Say such a person has an additional $100 of LTCG. That will increase their non-SS AGI by $100. Which will increase the amount of SS subject to tax by $50-$85 (let's use $50 for now). So AGI will increase by $150. That increase will reduce the allowable medical deduction by 7.5% of $150 or $11.

So the $100 additional LTCG will increase taxable income by $161. $100 of that is the LTCG and will be taxed at 15%, or $15. The other $61 is taxed as ordinary income and will be taxed at, say, 25% (to be subject to the 15% rate on LTCG you have to be in at least the 25% bracket). 25% of $61 is $15.

Thus that extra $100 of LTCG ends up increasing your tax by $30. So even though the "advertised" tax rate on your LTCG is 15%, you actually experience a 30% marginal rate on your LTCG.

maximum rate of 15%, not 20%.

Good catch, Ira. Thanks.

(snipped the Rube Goldbergesque process of adding $100 cap gain)

Wow - amazing, Rich. I've watched how a $100 IRA conversion can be taxed at 47% for someone in the 25% bracket due to the Social Security effect, but missed the effect of the 7.5% medical.

The "Phantom Rate" can be a killer if ignored. It's easy to look at the rate charts and see the standard marginal rates. I've always loved to tinker on the tax software to see the delta by adding $100 or removing $100 to income/cap gains/etc to understand the true impact.

Another effect that might be included is what would happen if the $100 increase in AGI (and hence MAGI) would trigger a change in the Medicare Part B IRMAA premium adjustment. While this is not an _income tax_, the monthly rates per person are $0, $46.10, $115.30, $184.50, and $253.70 depending on the level of income (for Single, HoH, QW and MFJ filers, only top two brackets for MFS). If the increase in premiums does not cause an increased deduction on Schedule A, that extra $100 of income can have significant effect on a couple's finances.

Dilip Sarwate