LTCG harvesting ?

[Live And Learn]

I am wondering if it makes sense for me to sell securities with LTCG up to the 15% tax bracket for 2017. I hate what it does to my tax bill, but in the long run I wonder if I might end up paying more than 15% in taxes if I wait. I would sell and then repurchase immediately at the higher cost (there is no wash sale implications for gains, if I am correct). Resetting at the higher basis also seems to make sense.

If I do this I would need to pay estimated income tax on those gains, and I have no idea how to do that.

Gosh - this seems like work

Thoughts ?

 

[audreyh1]

If it's an asset I intend to hold anyway, I wouldn't.

Edited to add: If you won't incur any additional taxes, and it doesn't cause problems in other areas sensitive to AGI, I would.

Back in 2012? it might have made sense for folks whose capital gains taxes (and new taxes added) were definitely going up the next year.

Rebalancing or trimming is another matter.

 

[bingybear]

I am wondering if it makes sense for me to sell securities with LTCG up to the 15% tax bracket for 2017. I hate what it does to my tax bill, but in the long run I wonder if I might end up paying more than 15% in taxes if I wait. I would sell and then repurchase immediately at the higher cost (there is no wash sale implications for gains, if I am correct). Resetting at the higher basis also seems to make sense.

what does selling investments with LTCG up to the top of th 15% bracket do to your tax bill nothing unless you are wanting a PTC. It works pretty much as you discribe.

 

[Gotadimple]

I am wondering if it makes sense for me to sell securities with LTCG up to the 15% tax bracket for 2017. I hate what it does to my tax bill, but in the long run I wonder if I might end up paying more than 15% in taxes if I wait. I would sell and then repurchase immediately at the higher cost (there is no wash sale implications for gains, if I am correct). Resetting at the higher basis also seems to make sense.

If I do this I would need to pay estimated income tax on those gains, and I have no idea how to do that.

Gosh - this seems like work

Thoughts ?

Capital Gains are already taxed to a maximum of 15% (20% if you're in the 39.6% tax bracket). If you are in the 15% tax bracket, capital gains are taxed at 0%.

Your plan to sell now, pay taxes for the LTCG now, and then reinvest for a higher tax basis assumes your investments will continue to grow. That's true some of the time, but not always. Then you'd have a capital loss if you held onto the losing investment for a year.

Both Gains and Losses are reported on Schedule D. Any tax software program will ask if you have Capital Gains/Losses and will prompt for details to the taxable amount.

- Rita

 

[CoolChange]

No Wash Sale Worry on Gains

...there is no wash sale implications for gains, if I am correct...

According to my interpretation of GainsKeeper and the IRS, no worries about wash sales if you have a gain (instead of a loss).

I looked this up because I thougth the basis just adjusted with no gain reported in this situation. Now, I have yet another tool at my disposal to consider. Thanks for pointing this out.

 

[LOL!]

Yes, it does make sense to tax-gain harvest if one is not paying taxes on LTCG because one is in the 0% LTCG tax bracket.

See also: https://www.bogleheads.org/wiki/Tax_gain_harvesting

 

[RunningBum]

Two things come to mind against this strategy.

First, if you never have to sell the securities, your heirs get an updated basis and neither of you will ever pay taxes on the gains.

Second, you lose out on compounding a bit, especially if the rates don't change:

Suppose you have $200K of a security with $100K basis, and let's say it's going to double over time before you sell it for good.

If you don't sell/buy now, it'll be worth $400K, with 300K gain taxed at 15%, or $45K, so you have $355K total.

If you sell and repurchase now, you pay $15K on the $100K gain in taxes, and now have $185K to reinvest. After it doubles, you have $370K with $27,750 in taxes on the $185K gain. You're left with $342,250, or $12,750 less than if you'd have left it alone.

In fact, if the tax rate on LTCGs went up to 20% you'd still be behind, $340K vs. $333K. Now, there is a crossover point, if it only goes up 5% rather than doubling I'm sure you'd be better selling now if rates go up later, but if rates stay the same you'll be best to just hold.

I know you could've paid taxes now with other funds, but presumably those funds wouldn't have sat earning nothing over the years.

 

[bobandsherry]

The Stock Market Is Soaring. Here's How to Cash In on Your Gains Without Paying Taxes

 

[RunningBum]

Yes, it does make sense to tax-gain harvest if one is not paying taxes on LTCG because one is in the 0% LTCG tax bracket.

See also: https://www.bogleheads.org/wiki/Tax_gain_harvesting

Agree, but the OP was talking about paying more taxes so I was assuming they weren't talking about being in the 0% LTCG range.

 

[bingybear]

Agree, but the OP was talking about paying more taxes so I was assuming they weren't talking about being in the 0% LTCG range.

I just looked at the OP "about me". Says he was an accountant. Not sure how to process that with the question asked.

 

[RunningBum]

I just looked at the OP "about me". Says he was an accountant. Not sure how to process that with the question asked.

Yeah, and i don't know what "up to the 15% bracket" could mean other than the range for 0% on LTCGs. Can I write off the time I wasted composing my first post in this thread?

 

[MichaelB]

I just looked at the OP "about me". Says he was an accountant. Not sure how to process that with the question asked.

Not sure what the concern is. Many accountants specialize in fields other than tax.

 

[ocean view]

I just looked at the OP "about me". Says he was an accountant. Not sure how to process that with the question asked.

In the OP’s defense, not all accountants are personal income tax accountants. There are many areas of public accounting, corporate, small business accounting, etc. where one could have a career and never have to consider LTCGs.

 

[Live And Learn]

Ok, I've got it ! I have the last payment on my deferred comp next year. Those payments are throwing me outside the 15% tax bracket. I will tax gain harvest (assuming I still have the gains !!) in 2019 to take advantage of the 0% LTCG bracket.

For now I will only sell at year end what I need to fund next years expenses.

Thanks !!