As accountants we love numbers, and the number we love the most is zero…well, when it comes to tax liability. Congress recently extended the American Taxpayer Relief Act (ATRA) which allows certain taxpayers to qualify for a 0% tax rate on some or all of their long-term capital gains realized in 2015.
The 0% rate only applies to taxpayers that end up in the 10 – 15% regular income tax brackets. I’ve seen an example of this for the 2014 tax year where a self-employed taxpayer in the 33% tax bracket had self-employed income of $60,000. The taxpayer was able to reduce their taxable income further to $20,000 with retirement contributions and itemized deductions such as, mortgage interest, property taxes, and gifts to charity.
In addition this taxpayer had $50,000 in capital gains for 2014. As this taxpayer’s total taxable income of $70,000 ($20,000 + $50,000) was less than the threshold $74,900, (for 2015, the threshold is $37,450 for single filers and $74,900 for joint filers), the entire long-term gain was tax-free!
What this can mean for you in 2015
If you are anticipating your taxable income to be below the threshold, it may be time to recognize the appreciation on some of those long-term assets. Just note that the 0% capital gains rate only applies to assets held longer than one year. Short-term gains are taxed at ordinary income rates.