The myth of the 0% capital gains rate.

Congress passed a tax law that made capital gains tax free for those whose taxable income results in their taxes being taxed at less than 25 percent. However this law does not really apply if you are receiving a social security benefit. What happens is the capital gain is not directly taxed, but that same capital gain increases the amount of your social security benefit that is taxable.

In my case a capital gain of $10,150 resulting in a federal tax increase of $778 or a 7.67 percent equivalent tax rate. In the state of MN the same capital gain results in a tax increase of $915 or 9.0 percent equivalent tax rate. The two together are taxing that amount at a 18.9 percent rate. It raises my total tax obligation by 87.8 percent.

So much for a zero capital gains rate. Social Security benefits effectively cancels the tax law. The only way it would remain at zero percent would be if your SS benefit were already taxed at 100 percent.

capital gains, social security, taxes

Comments are closed.