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Capital Gains Tax Question - How to get 0%
Old 09-24-2021, 09:07 AM   #1
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Capital Gains Tax Question - How to get 0%

Hi All,

When we retire in a couple of years, the only income we'll have initially is pension income which will be less than $70K. Since this is less than the $80,800 threshold for 0% cap gains tax, I'm thinking that would be a good year to immediately liquidate everything in our taxable account in order to realize the substantial gains that have built up over the years. I would then buy back the same securities the next day.

Am I missing something here? Why don't more people do this? Thanks for your input.
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Old 09-24-2021, 09:26 AM   #2
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Tax-gain harvesting is a fine idea. But, in your case, you only have about $35k in "headroom" for 0% conversions. That is, you can incur about $35k in capital gains, which combines with your pension to give you about $105k in income; when reduced by your standard deduction, this should bring your taxable income under the $80.8 bracket for 0% cap gains.

In other words, don't forget that the cap gains ALSO count as income towards the $80.8k bracket max.
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Old 09-24-2021, 09:31 AM   #3
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Originally Posted by Out-to-Lunch View Post
Tax-gain harvesting is a fine idea. But, in your case, you only have about $35k in "headroom" for 0% conversions. That is, you can incur about $35k in capital gains, which combines with your pension to give you about $105k in income; when reduced by your standard deduction, this should bring your taxable income under the $80.8 bracket for 0% cap gains.

In other words, don't forget that the cap gains ALSO count as income towards the $80.8k bracket max.
Thank you OTL! I knew there had to be a catch. Let me guess, dividend income counts too?
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Old 09-24-2021, 09:32 AM   #4
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Originally Posted by Ncc1701 View Post
Hi All,



When we retire in a couple of years, the only income we'll have initially is pension income which will be less than $70K. Since this is less than the $80,800 threshold for 0% cap gains tax, I'm thinking that would be a good year to immediately liquidate everything in our taxable account in order to realize the substantial gains that have built up over the years. I would then buy back the same securities the next day.



Am I missing something here? Why don't more people do this? Thanks for your input.

Here’s a capital gains calculator that may help:

https://smartasset.com/investing/cap...tor#bHvaafURBF
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Old 09-24-2021, 09:43 AM   #5
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Originally Posted by Ncc1701 View Post
Thank you OTL! I knew there had to be a catch. Let me guess, dividend income counts too?
Yes, all income counts. (interest, dividends, fund declared capital gains, SS, pension, lottery winnings, jury duty $, ...etc).
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Old 09-24-2021, 08:13 PM   #6
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Thanks, this confirms what I suspected. I've got a CEF with about 6k gains in our brokerage account that I was considering whether to sell, but it probably would be counter-productive. I'll look at it again in December, when I have a better sense as to whether I'm over 105k or not. Some other CEFS spew out income and CGs so I think I will be close without selling the CEF.



Quote:
Originally Posted by Out-to-Lunch View Post
Tax-gain harvesting is a fine idea. But, in your case, you only have about $35k in "headroom" for 0% conversions. That is, you can incur about $35k in capital gains, which combines with your pension to give you about $105k in income; when reduced by your standard deduction, this should bring your taxable income under the $80.8 bracket for 0% cap gains.

In other words, don't forget that the cap gains ALSO count as income towards the $80.8k bracket max.
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