zero personal income tax in FIRE

[Big_Hitter]

seems to be what will happen in 2020 in our situation, anyway

in 2020, our income will consist of two modest pensions, a rental and interest/dividends - most of the interest will be generated from a municipal bond portfolio - maybe about half of our income - going forward this will likely be the case for the next 5 years

so with our medical premiums, something we didn't have to worry about when I had a j*b, we may have about 20K in medical expenses to deduct. Since AGI doesn't include the muni bond income, we will have a very low floor for the medical expense deduction. This combined with mortgage interest in excess of $10K and property taxes also in excess of $10K, it looks like those 3 deductions will just about offset our taxable income. Maybe I'm missing something on the AGI calculation?

 

[pb4uski]

I think you are saying that your deductions will be about equal to your tax return income... so your taxable income will be negligible and your tax will be zero. Very common.

Unfortunately, if you have tax-deferred money you lost out on the opportunity to do as much as $78,750 of Roth conversions through the top of the 0% capital gains bracket and pay only 10-12%.... but you may want to consider that for 2020.

 

[Big_Hitter]

Just my k money that I plan on leaving with the employer. I'm deferring 100% of what I earn now as a part timer. Any increase to agi will increase the floor on the medical deduction.

 

[pb4uski]

The play is that it is better to convert now and pay $9,062 (11.5%) on $78,750 of conversion than pay 22% ($17,325) or more later when SS starts.... low hanging fruit.

 

[Big_Hitter]

Thanks! I'll look into it.

 

[Philliefan33]

Remember that the property tax deduction (actually all state and local taxes combined) is capped at $10K, so you won’t be able to deduct all of your property taxes

 

[SecondCor521]

Also that the medical deduction amount on schedule A is only the amount above the floor (7.5% for 2019). So if you hit 10% of income in 2019, you would only be able to put 2.5% for medical expenses, not 10%.

You probably knew that, but others might not.

 

[Big_Hitter]

Also that the medical deduction amount on schedule A is only the amount above the floor (7.5% for 2019). So if you hit 10% of income in 2019, you would only be able to put 2.5% for medical expenses, not 10%.

You probably knew that, but others might not.

correct - the deduction is the excess, if any, of the eligible medical expenses over 10% of AGI

 

[Gill]

If you have no income tax, the municipal bond portfolio makes no sense.
Gill

 

[SecondCor521]

correct - the deduction is the excess, if any, of the eligible medical expenses over 10% of AGI

Except it's 7.5% of AGI for 2019. The threshold was reduced retroactively in the spending bill which became law in late December 2019.