How do taxes work when your only income is from capital gains?

Question

Let's say I don't have ordinary income, so I'm at the 10% tax bracket. If all of my income is from capital gains, how much of it do I pay in taxes?

My understanding is that if I'm in the 10% tax bracket, I pay 10% in short-term capital gains and 0% in long-term capital gains. Does that mean that if I have millions of dollars invested and the proceeds give me hundreds of thousands of dollars in income each year, the most I would pay in taxes on that would be 10%?

AxiomaticNexus · Accepted Answer

I found the answer. I had a small misconception about capital gains taxes. It so happens that your ordinary income tax bracket is calculated by adding your capital gains to your ordinary income. So in the example I gave in the question, those hundreds of thousands of dollars of capital gains income would put you in a high tax bracket, so you would have to pay capital gains taxes based off that tax bracket (probably 20% for long term and 39% for short term in the worst case scenario).

Correct answer by AxiomaticNexus on February 25, 2021

jmtt77 · Answer

I believe that this thread provides a better answer: How are long-term capital gains taxed if the gain pushes income into a new tax bracket?
Your answer misses the point that your capital gains would be taxed at zero percent up to about $40k (I believe this equates to everything that falls into the 10% and 12% tax brackets).  After that, your long-term cap gains income would be taxed at capital gains rates rather than ordinary income rates.

How do taxes work when your only income is from capital gains?

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