Paul L. Caron

Wednesday, January 25, 2012

Capital Gains Tax Rates: 2012 v. 2013

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Lets get our facts straight! If sunset provisions expire, qualified 5 year gain will be taxed at 18% not 20%. Sec 1(h)(1)(C

Posted by: CPA | Jan 27, 2012 10:27:40 AM

For anyone paying AMT, typically the affluent but not rich, the capital gains tax rate is already 22%. Reason: The phaseout of the AMT exemption adds 25 cents back to your AMT-taxable income for every dollar of capital gain. That 25 cents is taxed at 28% (26% for low-rung affluent), meaning an extra 7 cents (or 6.5 cents) of tax on the dollar of capital gain.

Throw in California’s 9.3% tax rate (which is not deductible under the AMT and which California’s legislature would like to increase further), and the total rate is currently 31.3%. Increasing that tax rate to 41.3% is guaranteed to depress realization of taxable gains. People will not sell unless they absolutely have to.

The result will be an income tax under which the financially pressed (people who are forced to sell assets) pay more than the financially secure. That’s not progressive, no matter how you look at it.

Incidentally, there are other phaseouts, notably the education tax credit, which increase the actual marginal rates on capital gains even further. One student adds 12.5%; two students add 25%. You need to double those percentages for single or head of household filers!

See for a startling summary of just how many phaseouts there are, and how much each one boosts our marginal tax rates.

Posted by: AMTbuff | Jan 25, 2012 12:13:13 PM