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Old 12-03-2017, 04:05 PM   #141
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Originally Posted by aza455 View Post
Does anyone know if the foreign tax credit is eliminated?
It seems to be partially repealed, but looks very complicated. It also interacts with the whole new foreign corporate tax system. From the PWC analysis linked to earlier, under the corporate tax section:

Repeals deemed paid tax credit for
dividends received from a foreign
corporation. Retains deemed paid tax credit
for subpart F inclusions. Proposal
eliminates need for computing and tracking
cumulative tax pools.
No foreign tax credit or deduction
permitted for any taxes paid or accrued
with respect to any dividend subject to the
new deduction for foreign dividends.
Adds separate baskets
for foreign branch
income and GILTI

I'm not sure how this works for personal income taxes and there is no reference to it in the PWC analysis.
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Old 12-03-2017, 04:36 PM   #142
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Yes it will because it will affect the size of your capital gain. When you sell shares to rebalance in your taxable accounts, do you pick specific lots to sell to lower the realized capital gains? Or do you sell the oldest shares first by default?
While it will affect the gain... for those who manage gains to pay 0% on LTCG it'll be more of a nuisance than an impediment.
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Old 12-03-2017, 04:57 PM   #143
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It reduces the inflation adjustments to tax brackets etc. as compared to using the CPI. As a result, folks get pushed into higher tax brackets more quickly than otherwise.

I suppose it comes down to whether you think chained-CPI is a more accurate tracking of inflation than the regular CPI.

Yes, it affects all of us.

There are fist fights whenever someone pushes for SS COLAs to switch to chained-CPI.
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How is Chained CPI ugly? How does that affect you? Or is that a political opinion?
Sorry just getting back to this. Thanks, Audrey for the response. BTW, I'm a trained economist--everything in the real world is ugly :-)

-BB
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Old 12-03-2017, 05:05 PM   #144
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While it will affect the gain... for those who manage gains to pay 0% on LTCG it'll be more of a nuisance than an impediment.
The big deal is that it might raise someone’s taxable income big time because they may be forced to realize the highest gains. Usually the oldest shares have the highest gains.

For folks who are using the 0% LTCG tax rates, you could be filling up that range much faster with smaller after tax proceeds.

And the realized gain increase shows up in your MAGI for folks who qualify for ACA subsidies or having more of their SS income subject to taxation.

For folks subject to IRMAA on Medicare, higher taxable capital gains income can cause higher Medicare premiums.

I don’t think it’s nearly as innocuous as you suggest.
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Old 12-03-2017, 05:30 PM   #145
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The big deal is that it might raise someoneís taxable income big time because they may be forced to realize the highest gains. Usually the oldest shares have the highest gains.

For folks who are using the 0% LTCG tax rates, you could be filling up that range much faster with smaller after tax proceeds.

And the realized gain increase shows up in your MAGI for folks who qualify for ACA subsidies or having more of their SS income subject to taxation.

For folks subject to IRMAA on Medicare, higher taxable capital gains income can cause higher Medicare premiums.

I donít think itís nearly as innocuous as you suggest.


I agree that it might be a big deal for long time buy-and-holders. If one has to pull a certain sum out of oneís portfolio to cover living expenses, a larger portion of it might be subject to income tax if forced to liquidate the oldest shares first.
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Old 12-03-2017, 05:47 PM   #146
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An apparently well-informed comment from another forum
https://www.whitecoatinvestor.com/fo.../5/#post-78772
seems to track down the amendment (SA 1855, replacing SA 1618) where they ostensibly removed the section 13611 “CONFORMITY OF CONTRIBUTION LIMITS FOR EMPLOYER- SPONSORED RETIREMENT PLANS.”

The effect of this is that 457b plans would continue to have their own $18.5k+$6k limit, separate from the 401k/403b $18.5k+$6k limit (so you can do both if you have access). It had seemed as though these would have been put under a single limit, reducing tax deferral space for some by $18.5k (+$6k if >=50yo).

Of course it's not final yet.
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Old 12-03-2017, 05:52 PM   #147
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I agree that it might be a big deal for long time buy-and-holders. If one has to pull a certain sum out of oneís portfolio to cover living expenses, a larger portion of it might be subject to income tax if forced to liquidate the oldest shares first.
Exactly!

And many of us rebalance. This likely raises the tax costs of rebalancing as it forces you to recognize larger (potentially a lot larger) capital gains income for the same rebalancing.

Using specific shares has really helped with reducing the tax consequences of rebalancing in taxable accounts because itís usually shares I bought just a few years ago that can be trimmed to rebalance when an asset class finally turns around and outperforms.
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Old 12-03-2017, 05:52 PM   #148
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.... I donít think itís nearly as innocuous as you suggest.
Perhaps for some but not for us. I did some gains trading a few years ago so I have very few lots in our taxable accounts and the bases are very similar between lots.

One interesting issue might be that we hold the same ticker in our individual and joint accounts... so is FIFO applied to each account or across all accounts since we file a joint return. I suspect the latter... across accounts. So for example, if I sell the oldest lot in my account but there is an older lot with a lower cost basis in DW's account the the gain would be calculated based on the older lot in her account.

Similar but different than the separate brokerage accounts issue. Could get messy, especially if a MFJ couples trading is not coordinated.
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Old 12-03-2017, 06:28 PM   #149
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Perhaps for some but not for us. I did some gains trading a few years ago so I have very few lots in our taxable accounts and the bases are very similar between lots.

One interesting issue might be that we hold the same ticker in our individual and joint accounts... so is FIFO applied to each account or across all accounts since we file a joint return. I suspect the latter... across accounts. So for example, if I sell the oldest lot in my account but there is an older lot with a lower cost basis in DW's account the the gain would be calculated based on the older lot in her account.

Similar but different than the separate brokerage accounts issue. Could get messy, especially if a MFJ couples trading is not coordinated.
Given for recent purchases the brokerage house knows the basis, and reports it on the 1099b if you crossed brokerage houses it would make every entry require an adjusted basis. I don't see how that could realistically be enforced. The IRS will know what the 1099b shows and nothing more.
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Old 12-03-2017, 06:46 PM   #150
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Given for recent purchases the brokerage house knows the basis, and reports it on the 1099b if you crossed brokerage houses it would make every entry require an adjusted basis. I don't see how that could realistically be enforced. The IRS will know what the 1099b shows and nothing more.
Agree, they would need to rely on voluntary compliance supplemented by audit results... not very different from wash sale compliance today.
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Old 12-03-2017, 06:57 PM   #151
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^ Some article suggest (guess?) that FIFO would be implemented per brokerage, i.e. the brokerage reports that you sold the earliest lot(s) held at that brokerage, and that would determine you cost basis. That version is much easier to implement, but also means the investor wouldn't really be being forced to sell their absolute oldest lots first.
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Old 12-03-2017, 07:01 PM   #152
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... One interesting issue might be that we hold the same ticker in our individual and joint accounts... so is FIFO applied to each account or across all accounts since we file a joint return. I suspect the latter... across accounts. So for example, if I sell the oldest lot in my account but there is an older lot with a lower cost basis in DW's account the the gain would be calculated based on the older lot in her account.

Similar but different than the separate brokerage accounts issue. Could get messy, especially if a MFJ couples trading is not coordinated.
About the comparison of this with the wash sale rule, the wash sale rule applies if you sell and buy the same stocks in a tax-deferred account and a taxable account.

This FIFO rule will most likely be applicable across tax-deferred and taxable accounts the same way.

If you have both types within a brokerage, the broker's computer can easily look for this. It is tough to check across brokerages, and the IRS does not have the computer, nor the info or manpower to do this.
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Old 12-03-2017, 07:10 PM   #153
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How could the FIFO rule possibly be applied across an IRA and taxable account?

Nothing today in selling stocks or mutual funds if you use FIFO or average cost basis require this to be applied across multiple accounts. It boggles the mind that suddenly average cost basis or FIFO selling would be applied across all accounts and brokerages let alone deferred and taxable accounts.

Average cost basis has never ever been done across accounts.
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Old 12-03-2017, 07:13 PM   #154
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How could the wash sale rule be applicable across an IRA and taxable account?

By a decree from the IRS or something like that.

When Congress passes a law, it does not consider all the ramifications in real life. The IRS often has to sort it out and provides further details.

I did not know about the wash sale rule between taxable and tax-deferred accounts, and intentionally did that following the advice I read from the Web. Apparently, this trick to circumvent the wash sale rule caught on, and more people did it. Then, there was the IRS 2008-5 ruling that finally said explicitly that it was not OK.
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Old 12-03-2017, 07:27 PM   #155
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How could the wash sale rule be applicable across an IRA and taxable account?

By a decree from the IRS or something like that.

When Congress passes a law, it does not consider all the ramifications in real life. The IRS often has to sort it out and provides further details.

I did not know about the wash sale rule between taxable and tax-deferred accounts, and intentionally did that following the advice I read from the Web. Apparently, this trick caught on, and more people did it. Then, there was the IRS 2008-5 ruling that finally said explicitly that it was not OK.
That may be. But people have been using LIFO, FIFO, and average cost basis for years, and it has only ever applied within a given account. So it seems absurd that suddenly it would change to apply across all accounts, different from what it has up until now.

The wash sale rule you only have to wait a month after selling at a loss to buy something.

The oldest tax lot stuff would last forever under all conditions.
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Old 12-03-2017, 08:39 PM   #156
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Does anyone know if the preferential tax treatment given to Schedule C filers (ie 17% business income deduction) will also be extended to Schedule E filers who consider themselves a business?

I know that we have multiple landlords on this forum...

-gauss
Schedule E subtitle says "(From rental real estate, royalties, partnerships, S corporations, estates, trusts, REMICs, etc.)". So I am assuming schedule E would be rated with preferential tax rate! Just a wild guess at this point.
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Old 12-03-2017, 08:53 PM   #157
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That may be. But people have been using LIFO, FIFO, and average cost basis for years, and it has only ever applied within a given account. So it seems absurd that suddenly it would change to apply across all accounts, different from what it has up until now.

The wash sale rule you only have to wait a month after selling at a loss to buy something.

The oldest tax lot stuff would last forever under all conditions.
I agree that it will cause a lot of grief. However, if the intention of the law is to make you pay more in taxes, then the IRS may have to further clarify the rule to disallow circumvention.

In the case of the wash sale, it is not forbidden to sell at a loss in a taxable account then buy back immediately in an IRA. It's only that you cannot write off the loss.

They can define something similar for this FIFO law. Whether they can catch people is another thing.

PS. It is also possible that the IRS will say it is not applicable across taxable and tax-deferred. We will see.
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Old 12-04-2017, 05:30 AM   #158
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Agree that the IRS will sort it out. There may even be people who test it and go to tax court. It may take a while, look at the megabackdoor roth. That took a while for the IRS to make a notice. I suspect it will start with the brokerage reporting first and they'll go from there.

Yes, it does suck for some. This was intentionally put in there to recover more tax somewhere else.

It is really lazy of me. I've been meaning to change to specific lots on my brokerage for some time, but haven't. I've been mostly either selling everything of a specific security, or donating the oldest to charity. In both cases, the FIFO setting was OK. I was going to get around to changing it soon. I guess I don't have to worry about that now...
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Old 12-04-2017, 07:03 AM   #159
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The AMT is still there? They raised the thresholds a bit?
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Old 12-04-2017, 07:09 AM   #160
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The AMT is still there? They raised the thresholds a bit?
AMT is still in the Senate bill, with higher thresholds.
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