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Capital Gains Tax Question - How to get 0%
09-24-2021, 09:07 AM
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#1
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Recycles dryer sheets
Join Date: Jul 2020
Location: Sector 001 - Alpha Quadrant
Posts: 237
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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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09-24-2021, 09:26 AM
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#2
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Thinks s/he gets paid by the post
Join Date: Jan 2020
Location: Milwaukee
Posts: 3,976
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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.
__________________
The closing years of life are like the end of a masquerade party, when the masks are dropped. -Arthur Schopenhauer, philosopher (1788-1860)
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09-24-2021, 09:31 AM
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#3
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Recycles dryer sheets
Join Date: Jul 2020
Location: Sector 001 - Alpha Quadrant
Posts: 237
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Quote:
Originally Posted by Out-to-Lunch
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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Thank you OTL! I knew there had to be a catch. Let me guess, dividend income counts too?
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09-24-2021, 09:32 AM
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#4
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Mar 2013
Location: Limerick
Posts: 5,638
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Quote:
Originally Posted by Ncc1701
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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Here’s a capital gains calculator that may help:
https://smartasset.com/investing/cap...tor#bHvaafURBF
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09-24-2021, 09:43 AM
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#5
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Give me a museum and I'll fill it. (Picasso) Give me a forum ...
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 17,012
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Quote:
Originally Posted by Ncc1701
Thank you OTL! I knew there had to be a catch. Let me guess, dividend income counts too?
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Yes, all income counts. (interest, dividends, fund declared capital gains, SS, pension, lottery winnings, jury duty $, ...etc).
__________________
Fortune favors the prepared mind. ... Louis Pasteur
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09-24-2021, 08:13 PM
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#6
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Thinks s/he gets paid by the post
Join Date: Oct 2012
Location: Reno
Posts: 1,331
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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
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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