What is my effective capital gains tax rate if capital gains is my only income?

Question

If my earned income is $0 in 2008 and I sell $1,000,000 in stocks (mostly gains over several decades of being invested), is my cap gains tax rate really just 5% ($50,000)?

Am I missing a catch here?

Answer 1

The only catch is the rate is 15% not 5.

Answer 2

v.b. is correct.  I have used the work sheet, and I have used TurboTax, and both ways apply the lower rate only up to the top of the 15% (ordinary income) bracket, and 15% after that.

Answer 3

You sure are missing something.  The tax rate of 0, 5 or 15% depends on your TOTAL taxable income for the year, not just your earned income, so it's likely to be 15%.

And your "knowledge" is wrong - capital gains ARE income, just not considered earned income.

Take a trial run and fill out a schedule D and a form 1040.  

Answer 4

If you are single and the gains are all long term, the first $31K is at 0%, the rest is at 15%.  If you are married, the first $60K is at 0%.

The worksheet for the calculation is in publication 505.

<<Edit>>

Did you go look at the worksheet?  I gave you an IRS cite (the web is always behind) since you were getting confused.

1.  Capital Gains *is* income.  It's capital gain income, not "ordinary income."  Ordinary is your wages, interest, etc.

2.  You don't get the lower capital gains rate (currently 0% for 2008, 2009 and 2010, NOT 5%) for all of your income.  You get the 0% rate while your total income fits within the 10 and 15% tax brackets.  Once you hit the 25% tax bracket, it's 15%.

<<Second edit.>>  NO, not pub 550, pub 505.  Page 36.  Line 11.  There's your 0% bracket calculation.  Line 19 is the 15% bracket (the one we keep telling you about).  Line 25 for unrecaptured 1250 gain at 25% and line 28 for the 28% used for collectibles.

I find it scary that I give you an accurate cite and you assume without looking at IRS.GOV that I made a typo.