Question

To the extent long-term capital gain income would have been taxed at 15 percent or below if it were ordinary income, it is taxed a _ percent. To the extent long-term capital gain income would have been taxed at 39.6 percent, it is taxed at __ percent. All other long term capital gains are taxed at __ percent.

Answer 1

Long-term capital gains are taxed at varying rates depending on the income bracket: 0% for income taxed at or below 15%, 20% for income that would have been taxed at 39.6%, and 15% for all other long-term capital gains.

Step-by-step explanation:

To the extent long-term capital gain income would have been taxed at 15 percent or below if it were ordinary income, it's taxed at 0 percent. To the extent long-term capital gain income would have been taxed at 39.6 percent, it is taxed at 20 percent. All other long-term capital gains are taxed at 15 percent.

The concept of marginal tax rate is important in this context. For example, if a single taxpayer's income is $35,000 per year and the income up to $9,075 is taxed at 10%, and income from $9,075 to $36,900 is taxed at 15%, the taxpayer's marginal tax rate is 15% since that's the rate applied to the last dollar earned within the given income bracket.