Join Early Retirement Today
Reply
 
Thread Tools Display Modes
Capital Gains Tax Question - How to get 0%
Old 09-24-2021, 09:07 AM   #1
Recycles dryer sheets
 
Join Date: Jul 2020
Location: Sector 001 - Alpha Quadrant
Posts: 237
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.
Ncc1701 is offline   Reply With Quote
Join the #1 Early Retirement and Financial Independence Forum Today - It's Totally Free!

Are you planning to be financially independent as early as possible so you can live life on your own terms? Discuss successful investing strategies, asset allocation models, tax strategies and other related topics in our online forum community. Our members range from young folks just starting their journey to financial independence, military retirees and even multimillionaires. No matter where you fit in you'll find that Early-Retirement.org is a great community to join. Best of all it's totally FREE!

You are currently viewing our boards as a guest so you have limited access to our community. Please take the time to register and you will gain a lot of great new features including; the ability to participate in discussions, network with our members, see fewer ads, upload photographs, create a retirement blog, send private messages and so much, much more!

Old 09-24-2021, 09:26 AM   #2
Thinks s/he gets paid by the post
Out-to-Lunch's Avatar
 
Join Date: Jan 2020
Location: Milwaukee
Posts: 3,976
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)
Out-to-Lunch is offline   Reply With Quote
Old 09-24-2021, 09:31 AM   #3
Recycles dryer sheets
 
Join Date: Jul 2020
Location: Sector 001 - Alpha Quadrant
Posts: 237
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.
Thank you OTL! I knew there had to be a catch. Let me guess, dividend income counts too?
Ncc1701 is offline   Reply With Quote
Old 09-24-2021, 09:32 AM   #4
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Dash man's Avatar
 
Join Date: Mar 2013
Location: Limerick
Posts: 5,638
Quote:
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
Dash man is offline   Reply With Quote
Old 09-24-2021, 09:43 AM   #5
Give me a museum and I'll fill it. (Picasso)
Give me a forum ...
Sunset's Avatar
 
Join Date: Jul 2014
Location: Spending the Kids Inheritance and living in Chicago
Posts: 17,012
Quote:
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).
__________________
Fortune favors the prepared mind. ... Louis Pasteur
Sunset is offline   Reply With Quote
Old 09-24-2021, 08:13 PM   #6
Thinks s/he gets paid by the post
 
Join Date: Oct 2012
Location: Reno
Posts: 1,331
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.
RobLJ is offline   Reply With Quote
Reply


Currently Active Users Viewing This Thread: 1 (0 members and 1 guests)
 
Thread Tools
Display Modes

Posting Rules
You may not post new threads
You may not post replies
You may not post attachments
You may not edit your posts

BB code is On
Smilies are On
[IMG] code is On
HTML code is Off
Trackbacks are Off
Pingbacks are Off
Refbacks are Off


Similar Threads
Thread Thread Starter Forum Replies Last Post
Combat Tax Exclusion Zone, IRAs, and Capital Gains Tax Pajaro FIRE and Money 2 12-10-2019 02:08 PM
Capital Gains, Income Tax, Property Tax and Mortgage Interest Deductions nico08 FIRE and Money 11 11-14-2013 04:53 PM
Capital Gains Tax Question Westernskies FIRE and Money 3 10-29-2008 08:09 AM
Question on tax basis and capital gains on stock sale gettingthere FIRE and Money 15 02-09-2008 09:04 AM
capital gains tax question just_hatched FIRE and Money 5 01-31-2006 10:07 PM

» Quick Links

 
All times are GMT -6. The time now is 01:29 AM.
 
Powered by vBulletin® Version 3.8.8 Beta 1
Copyright ©2000 - 2024, vBulletin Solutions, Inc.