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June 30 — Capital gains made up 41.7 percent of income for high-income taxpayers in 2015, the highest level since at least 2009.
Those taxpayers, who make more than $10 million in adjusted gross income, reported more than $76.6 billion in total AGI, according to Internal Revenue Service statistical data from returns filed by May of this year.
In 2014, 39.6 percent of the group's income was tied to capital gains. That amount has increased steadily since 2012, when it was 36 percent, according to the data.
In 2009, slightly less than a quarter of income for high-income taxpayers came from capital gains, according to the data (124 DTR G-7, 6/29/15).
That is because capital gains are “very, very cyclical and relate to the stock market performance,” Joseph Rosenberg, a senior research associate at the Urban-Brookings Tax Policy Center, said in a June 30 interview. Thus, the percentage of capital gains making up AGI for the very wealthy has increased as the economy has improved after the Great Recession, and a healthy economy in 2015 was a boon for that group.
Almost everything an individual owns and uses for personal or investment purposes is considered a capital asset—such as homes, furnishings and stocks. The difference between the adjusted basis in the asset and the amount realized when it is sold is a capital gain or a capital loss.
Taxpayers in the highest income tax bracket are taxed at a rate of 20 percent on capital gains income. The data—released June 29—include Forms 1040, U.S. Individual Income Tax Return, processed by May 28.CAPITAL GAINS AS PERCENT OF AGI
• 2015: 41.7
• 2014: 39.6
• 2013: 37.1
• 2012: 36
• 2011: 37.4
• 2010: 37.2
• 2009: 23.8
The 3,469 taxpayers with an AGI of more than $10 million paid collectively about $20.4 billion in federal taxes, after credits, or about $5.9 million per return if evenly distributed, according to the data.
This group in aggregate paid about 27 percent of their 2015 income to the federal government, a percentage that has been steady since 2013.
But Rosenberg cautioned that many ultra-rich taxpayers often don't file on time because of the complexity of their returns, so the full group isn't represented in the May dataset. For example, 2,851 returns from the $10-million-plus earners were included in the IRS data from May 2015. There were 15,838 returns for those taxpayers in data from November 2015, according to data from that time.
“So much of the capital gains are from people at the top and that’s just a fact about the composition of their taxable income,” Daniel Shaviro, a tax professor at New York University School of Law, said in a June 30 interview. Shaviro is a former staffer at the congressional Joint Committee on Taxation.
Thus, he said, if the tax rate for capital gains is changed, “the benefit will be concentrated at the top—or the detriment.”
Taxpayers will decide to sell or hold onto investments depending on economic or tax policy changes, he said. Capital gains are included in a tax return the year they are sold, he said.
The 2012 Taxpayer Relief Act raised the capital gains rate to 20 percent, from 15 percent, for individuals with gross income of more than $400,000. Under the Affordable Care Act, the net investment income tax—a 3.8 percent rate on net investment income from certain investments such as capital gains and dividends—was imposed beginning in 2013 on individuals with a gross income of more than $200,000 (104 DTR G-3, 5/31/16).
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Text of the mid-May filing season statistics by AGI for 2016 is at https://www.irs.gov/uac/filing-season-statistics.
Copyright © 2016 The Bureau of National Affairs, Inc. All Rights Reserved.
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