Long Term Capital Loss and Taxes

[ExFlyBoy5]

This might come across as a stupid question, but I am going to ask anyway...

I am currently managing my 90 YO Dad's affairs.

- Current income is about 16K a year in SS
- +/- 3K in dividends.
- RMD of 6.6K this year but looking to increase that amount (this year) to reduce taxes later (if it becomes an inherited IRA).
- Current fed/state taxes are ZERO.

He has a holding in his brokerage account that has a LTC-loss of about 6K and I am thinking of selling it off (any gains will be minimal since it was a high dividend holding) and using the loss to allow a higher RMD...while maintaining a ZERO tax liability.

I understand that the LTC losses will first be applied to short term gains, then long term, then ordinary income. What I would like to confirm is that the 3K MAXIMUM per year is *after* the ST/LT gains calculation.

Am I in the ballpark or out to lunch on this?

[pb4uski]

Your understanding is correct... and the $3k loss allowed against ordinary income could be used to offset higher tIRA withdrawals without increasing taxable income.

If you have TT, use the What-If worksheet to see how different scenarios impact his taxes. Assuming that the dividends are all qualified dividends, I think you'll find that he can have up to $16,600 of tIRA withdrawals with no federal tax in 2018.

$3,000 dividends + $16,600 tIRA withdrawals - $3,000 LTCL - $13,600 of standard deductions = $3,000 of taxable income

$3,000 of preferenced income at 0% + $0 ordinary income.... so no tax.

YMMV.

[SecondCor521]

You're correct. The $3K is the amount of ordinary income that can be offset per year and is after any capital gains are first absorbed by the capital losses. See Schedule D in particular Line 21.

Any additional loss in excess of the $3K can be carried forward to future years but extinguishes upon death.

I don't know for sure but I'd be highly confident that your LTCL can offset the RMD income.

[ExFlyBoy5]

Quote:

Originally Posted by pb4uski Your understanding is correct... and the $3k loss allowed against ordinary income could be used to offset higher tIRA withdrawals without increasing taxable income. If you have TT, use the What-If worksheet to see how different scenarios impact his taxes. Assuming that the dividends are all qualified dividends, I think you'll find that he can have up to $16,250 of tIRA withdrawals with no federal tax in 2018. $3,000 dividends + $16,600 tIRA withdrawals - $3,000 LTCL - $13,600 of standard deductions = $3,000 of taxable income $3,000 of preferenced income at 0% + $0 ordinary income.... so no tax. YMMV.

Fantastic, thank you!