Capital Loss Carryforward

[madatrub]

Have a question for the group:

If one has a large capital loss carryforward, are there ways to take advantage of it into early retirement? My thought process is that I can use it to offset capital gains of investments in after tax accounts while retiring early, i can minimize my (m)AGI and maximize ACA subsidizes?

Example: $100,000 capital loss carryforward. Retire early.

In year 1 of retirement, sell $80,000 in long term investments at a 50% gain, take a $40,000 capital gain applying $43,000 in capital losses for a net capital loss of $-3,000, with a carryforward of $57,000. Show $0 in AGI, maximize ACA healthcare subsidies, and rinse/repeat into year 2 of retirement, and until the capital loss carryforward is exhausted?

Thoughts?

 

[SecondCor521]

First, you don't have a choice whether or not to apply the capital loss carry forward. It must be applied each year until it is used up or you die.

Second, there is a minimum AGI to qualify for ACA subsidies. It depends on the state I think, but is somewhere between 100% and 138% of FPL for your family size and location.

If you can get the state exchange to approve you for APTC (advanced subsidies), then you might not need to meet the minimum AGI. See the instructions for Form 8962 for details on this.

If you're below the minimum AGI for ACA, you might end up on Medicaid. This might be good or it might not be; it seems to depend on the state and your medical needs.

What you might do is Roth conversions to get the AGI up to your target ACA income level. Roth conversions are not offset by capital loss carry forwards (except for the $3,000 amount you alluded to).

Honestly, the best ACA subsidies in my opinion are probably at just under 200% FPL to get CSR87. But it depends on if your state does Silver loading. And on your medical needs. I could get Silver CSRs if I wanted them, but I choose to do a Bronze HDHP HSA eligible plan instead because I expect to be a low user of health costs.

Lots of moving parts. Good of you to ask the questions and to realize that taxes and healthcare are big parts of early retirement.

 

[VanWinkle]

First, you don't have a choice whether or not to apply the capital loss carry forward. It must be applied each year until it is used up or you die.

Second, there is a minimum AGI to qualify for ACA subsidies. It depends on the state I think, but is somewhere between 100% and 138% of FPL for your family size and location.

If you can get the state exchange to approve you for APTC (advanced subsidies), then you might not need to meet the minimum AGI. See the instructions for Form 8962 for details on this.

If you're below the minimum AGI for ACA, you might end up on Medicaid. This might be good or it might not be; it seems to depend on the state and your medical needs.



What you might do is Roth conversions to get the AGI up to your target ACA income level. Roth conversions are not offset by capital loss carry forwards (except for the $3,000 amount you alluded to).

Honestly, the best ACA subsidies in my opinion are probably at just under 200% FPL to get CSR87. But it depends on if your state does Silver loading. And on your medical needs. I could get Silver CSRs if I wanted them, but I choose to do a Bronze HDHP HSA eligible plan instead because I expect to be a low user of health costs.

Lots of moving parts. Good of you to ask the questions and to realize that taxes and healthcare are big parts of early retirement.

+1 to this. Best ACA income is 138% to 199% of poverty level for maximum cost and premium subsidies. Low deductible and OOP along with zero premium is possible.

 

[COcheesehead]

Loss carryovers are on autopilot. They will always be applied to capital gains first and then any excess will be applied to income up to $3000 max. If you still have carryover losses, the process repeats.

 

[madatrub]

First, you don't have a choice whether or not to apply the capital loss carry forward. It must be applied each year until it is used up or you die.

Second, there is a minimum AGI to qualify for ACA subsidies. It depends on the state I think, but is somewhere between 100% and 138% of FPL for your family size and location.

If you can get the state exchange to approve you for APTC (advanced subsidies), then you might not need to meet the minimum AGI. See the instructions for Form 8962 for details on this.

If you're below the minimum AGI for ACA, you might end up on Medicaid. This might be good or it might not be; it seems to depend on the state and your medical needs.

What you might do is Roth conversions to get the AGI up to your target ACA income level. Roth conversions are not offset by capital loss carry forwards (except for the $3,000 amount you alluded to).

Honestly, the best ACA subsidies in my opinion are probably at just under 200% FPL to get CSR87. But it depends on if your state does Silver loading. And on your medical needs. I could get Silver CSRs if I wanted them, but I choose to do a Bronze HDHP HSA eligible plan instead because I expect to be a low user of health costs.

Lots of moving parts. Good of you to ask the questions and to realize that taxes and healthcare are big parts of early retirement.

Thanks for the feedback, and while I agree with your "first", I do have a choice. I can decide which investments I sell in order to trigger usage of a capital loss carryforward. But you're right, if I did this, it wouldnt show as income anyway, so I'd be right back to square one. Semantics, perhaps.

I do like the idea of taking specific Roth IRA conversions in order to generate a specific income, as most of my friends who have gone the route of early retirement tell me to opt for a private ACA plan and to "stay away from Medicaid". They also tell me to get as close to the AGI that was approved on my APTC to stay out of any issues.