Sell min or max gains in taxable with LTCG

[Golden Mean]

Going to keep this simple and can expand if necessary.

When selling a fund with long term capital gains (LTGC) in your taxable account, is there any difference of effect on future portfolio performance of selling a holding with large LTGC vs selling one with small/less LTGC?

I've got holdings (in the same fund) that are up 33% and others up 147%. I can't shake the feeling I should sell the 147% gainers before the 33% gainers, but I can't think of a rational/financial reason why.

 

[audreyh1]

No difference in the effect on the future - a share is a share no matter the basis.

Big effect on your capital gains taxes if you sell the high cost basis versus the low. Many folks sell the higher cost basis shares to have a lower capital gains to tax.

 

[Golden Mean]

No difference in the effect on the future - a share is a share no matter the basis.

Big effect on your capital gains taxes if you sell the high cost basis versus the low. Many folks sell the higher cost basis shares to have a lower capital gains to tax.

Ok thanks. I do have a LTGC tax cap target but I can use some excess cash to make up the lesser total funds received from selling the high LTGC holdings.

Found a Boglehead post that sort of discusses this, but as typical on that forum, the responses just make things more complicated/confusing. with Spec ID, considerations for which LT shares to sell - Bogleheads.org

 

[audreyh1]

Ok thanks. I do have a LTGC tax cap target but I can use some excess cash to make up the lesser total funds received from selling the high LTGC holdings.

Found a Boglehead post that sort of discusses this, but as typical on that forum, the responses just make things more complicated/confusing. with Spec ID, considerations for which LT shares to sell - Bogleheads.org

If you have a target of how much LTCG to realize, then it’s more a matter of how many shares do you want to have left, or, is there also some total amount you wish to obtain from the sale. This would determine which shares you sell.

 

[Dalton]

Depends on what LTCG bracket you're in and your long term plans for those shares.

If you have to pay tax on a high cap gain share now vs. your heir getting a step-up in basis and paying no tax on it, I'd do the lower gain shares and pay the smaller tax now so the larger gain shares pay no tax later.

Or, if you happen to be in the 0% LTCG bracket, you may want to do the higher gain shares.
- e.g. You need to sell $30,000 worth of shares to pay your bills, and you have $20,000 of LTCG you could take in the 0% bracket before getting into the 15% bracket. You could sell $30,000 of recently bought shares that have only $5,000 of gains, or you could sell $30,000 of older shares that have $20,000 of gains...you won't have to pay tax in either case, but you might find yourself in the 15% LTCG bracket 10 years from now and you'd rather pay zero taxes on the $20,000 gains now than later pay 15% on the $20,000 plus all it's compounded growth for the next 10 years.

Of course, the rest of your tax calculations like ACA limits, IIRMA cliff, etc., need to be considered, also.

 

[RunningBum]

You would almost always want to see the one with higher basis, generating a smaller LTCG tax. When you die, your heirs get stepped up basis, so no sense in leaving them shares with less gains. Likewise if you donate shares you'd want to donate the ones with higher gains, so don't sell those now. I can't think of a reason to sell shares with higher gains. Maybe if you were very low income and wanted to generate enough income to get you out of Medicaid, but I'd still probably just sell more shares of the lower gain lot.

 

[RunningBum]

Depends on what LTCG bracket you're in and your long term plans for those shares.

If you have to pay tax on a high cap gain share now vs. your heir getting a step-up in basis and paying no tax on it, I'd do the lower gain shares and pay the smaller tax now so the larger gain shares pay no tax later.

Or, if you happen to be in the 0% LTCG bracket, you may want to do the higher gain shares.
- e.g. You need to sell $30,000 worth of shares to pay your bills, and you have $20,000 of LTCG you could take in the 0% bracket before getting into the 15% bracket. You could sell $30,000 of recently bought shares that have only $5,000 of gains, or you could sell $30,000 of older shares that have $20,000 of gains...you won't have to pay tax in either case, but you might find yourself in the 15% LTCG bracket 10 years from now and you'd rather pay zero taxes on the $20,000 gains now than later pay 15% on the $20,000 plus all it's compounded growth for the next 10 years.

Of course, the rest of your tax calculations like ACA limits, IIRMA cliff, etc., need to be considered, also.

I would still sell the shares with lower gains, and then enough of the shares with higher gains to use up the 0% LTCG tax space.

 

[Dalton]

I'm sure there's some combination that will work for everyone. Without any specific information or background, I just try to throw out concepts that he can work with and/or from, i.e, I only spoke of the 0% bracket, but the concept obviously applies at the cusp between the 15% and 20% brackets.

 

[Golden Mean]

Thanks for the tax based suggestions, but I think I have a handle on that. I was primarily asking about any change in expected future gains of the remaining holdings (of the same fund) if a low cost basis was sold vs a high cost basis. Pretty sure there's math somewhere that shows, as Audrey said, "it doesn't matter".

 

[audreyh1]

Two shares in one mutual fund, same symbol, that were bought at different times. They are indistinguishable going forward. They are going to have the same price every instant.

Only when you sell does the cost basis come into play.

No math required.

 

[TheWizard]

Two shares in one mutual fund, same symbol, that were bought at different times. They are indistinguishable going forward. They are going to have the same price every instant.

Only when you sell does the cost basis come into play.

No math required.

Correct.
Many of us stash excess retirement income in our taxable investment account with no reasonable likelihood of spending it all.
For those folks, the answer is clear: for the infrequent times when you need big cash (buying a new car) sell those lots with the lowest % of LTCG and those with either type of Capital Loss.
That's what I did.

For those folks who plan to die broke and are spending down their investments > than SWR year after year, I'm not sure what the right answer is...