Capital Gains Tax Question - How to get 0%

[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.

 

[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.

 

[Ncc1701]

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?

 

[Dash man]

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/capital-gains-tax-calculator#bHvaafURBF

 

[Sunset]

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).

 

[RobLJ]

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.

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.