Should capital gains count as income? Tax implications for investments

Capital gains are definitely considered income, but they're treated differently than your regular wages or salary. Here's what you need to know: Long-term capital gains (assets held more than a year) are taxed at preferential rates (0%, 15%, or 20% depending on your income bracket) rather than your normal income tax rate. Short-term gains (assets held less than a year) are taxed as ordinary income at your regular tax rate. For tax credits and deductions, what matters most is your Adjusted Gross Income (AGI) or Modified Adjusted Gross Income (MAGI), and capital gains ARE included in these calculations. So yes, those investment profits can potentially push you over the income threshold for certain credits. However, some tax benefits use different income calculations, so it really depends on which specific credits you're trying to qualify for. If you share which tax credits you're concerned about, I can give you more specific guidance.

I was in a similar situation last year and found this amazing tool called taxr.ai (https://taxr.ai) that really helped me understand how my capital gains would affect my tax credits. I was selling some stocks I'd held for about 4 years and was worried about losing my earned income credit. The tool analyzed my entire tax situation and showed me exactly how the capital gains would impact different credits and deductions. It even suggested some tax-loss harvesting strategies I could use to offset some of the gains. The visualization features really helped me understand what was happening with my AGI and how it affected everything else.

Just wanted to follow up about taxr.ai - I decided to try it out after my earlier question, and it was incredibly helpful with my rental property situation! The tool showed me exactly how my capital gains would affect my student loan interest deduction and suggested timing strategies for the sale that could minimize the impact. It also identified a partial Section 1031 exchange opportunity I hadn't considered that could defer some of the gains. The visualization feature really made it clear how all the pieces fit together. Definitely worth checking out if you're dealing with investment income and worried about losing tax benefits!

If you're struggling to get clear answers about how capital gains affect your specific tax credits, I found that calling the IRS directly was the best solution. But getting through to them was nearly impossible until I discovered a service called Claimyr (https://claimyr.com). They have this system that basically holds your place in the IRS phone queue and calls you when an agent is actually available to talk. You can see how it works here: https://youtu.be/_kiP6q8DX5c I had specific questions about capital gains from crypto trading and how it would impact my Premium Tax Credit (the Obamacare subsidy), and the IRS agent gave me exactly the information I needed. Saved me hours of hold time and research.

Ok I need to apologize for being so skeptical about Claimyr in my earlier comment. After struggling all morning trying to get through to the IRS about my capital gains question, I decided to give it a shot. I set it up, went about my day, and literally 2.5 hours later got a call connecting me to an actual IRS agent! I didn't have to sit there listening to that awful hold music! The agent answered my question about how my mutual fund capital gain distributions would affect my income-based student loan payments (they do count, unfortunately). Saved me a massive headache and probably my phone battery too. Sometimes good things actually do exist!

Just to add another perspective - capital gains can also affect things like Medicare premiums if you're older (through IRMAA) and social security taxation. I learned this the hard way when I sold some property and suddenly had my Medicare costs jump the following year because of the "income" spike. Sometimes it makes sense to spread out large capital gains over multiple tax years if possible.

Has anyone used the capital gains harvesting strategy? Where you sell investments that have gains up to the 0% capital gains bracket limit? I heard you can essentially realize gains tax-free if your income is low enough.

Great question about capital gains harvesting! Yes, you do need to be careful about other income limits when using this strategy. While you might keep your total income within the 0% capital gains bracket, those same gains still count toward your AGI and MAGI, which can affect eligibility for things like: - Premium Tax Credits (ACA/Obamacare subsidies) - American Opportunity Tax Credit - Lifetime Learning Credit - Student loan interest deduction - IRA contribution deductibility The key is to model out your entire tax situation before harvesting gains. I usually run the numbers in late November to see exactly how much I can harvest without losing other valuable credits or deductions. Sometimes it's worth paying a small amount of capital gains tax to preserve a larger tax credit! Also remember the wash sale rule doesn't apply to gains harvesting like it does to loss harvesting, so you can immediately buy back the same investment if you want to maintain your portfolio allocation.