How to Calculate Adjusted Gross Income & Capital Gains

Terms like AGI and capital gains can leave your head spinning when doing taxes.

Terms like AGI and capital gains can leave your head spinning when doing taxes.

While much of your overall taxation – including the credits and deductions for which you're eligible – depends on your adjusted gross income or modified adjusted gross income, knowing your capital gains is crucial for understanding how much long-term capital gains tax or taxes on sales of property and investments you owe.

Capital gains actually factor into your AGI, so it's best to figure out that total first. If you've been keeping even basic records of income, both capital gains and AGI are fairly straightforward sums to calculate.

Calculate Your Capital Gains and AGI

Capital gains represent the sum of your profits from the sale of property or investments; your earned capital and gross tax go hand in hand. To obtain this figure, you'll need to subtract your basis (your purchase price on real estate and investments plus commissions or fees paid, including reinvested dividends on stocks) from your realized amount (the sale price minus any commissions or fees on property and investments you sold) during the tax year. If the sale of assets resulted in profits, you have a capital gain.

Adjusted gross income is your total taxable income after adjustments. You'll first need to calculate your total income, which includes wages from Form W-2 and self-employment income, taxable interest and dividends, alimony payments received, capital gains, rental income and any other payments you received that aren't tax exempt. After you take all available deductions from that sum, including tax credits and write-offs, you're left with your adjusted gross income. Your modified adjusted gross income is your AGI plus or minus specific deductions, such as student loan interest payments or deductions claimed for residency outside of the U.S.

File Your Forms

File your capital gains and losses on Schedule D via Form 8949. Your AGI also appears on most common tax forms, including the Schedule D Form 1040, 1040-A and 1040-EZ.

These forms are due on April 15th along with your tax filing and can be filed by mail, online or through your accountant. Use a Form 1040-X to amend your return if you make any mistakes on your capital gains or AGI.

Changes by Tax Year

For tax years 2017 and 2018, you must reduce the total expense of itemized deductions you claim by 7.5 percent of your AGI. In 2019, you'll only be able to deduct total unreimbursed allowable medical care expenses that exceed 10 percent of your AGI. Your AGI, of course, determines your overall tax bracket, which saw big changes due to the tax laws passed in 2017. You can view a full breakdown of income tax brackets and rates on the Tax Foundation website.

Likewise, long-term capital gains tax rates changed in 2018. In 2017, singles owed zero percent on income below $37,950, 15 percent on income between $37,951 and $418,400 and 20 percent on income over that. In 2018, you'll owe nothing on income below $38,700, 15 percent on $38,701 to $500,000 and 20 percent on income over $500,000.

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About the Author

Dan's decade-long experience as a freelance writer and small business owner has seen him contribute to financial publications including Chron.com, Zacks.com, MSN Money, Fortune, Motley Fool and others.

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