RISP
Recycles dryer sheets
- Joined
- Jul 18, 2012
- Messages
- 407
Here's some background info about the situation: Until 2008, capital gains were not taxed in Germany if the stock (or stock fund) was held for more than one year. This rule has been abolished as of 01.01.2009. Therefore I own some ETFs which I bought before that date, and any capital gains on them can be realized tax-free. (The total balance is nothing to write home about as I had just started investing back then.) Any capital gains on an asset bought after that date are taxed at about 27%.
Because of that legal change, I had always planned to leave these funds untouched for a looong time - possibly forever. It makes sense to just let these stocks appreciate in value IF I EVER INTEND TO SELL THEM. But what if I'm living off investments and not touching the principal? It doesn't matter if any unrealized capital gains are taxable or not, or am I missing something? 1,000 EUR invested under the old rule will produce the same amount of dividend income as 1,000 EUR invested after 2008, right? And those dividends are taxable under both scenarios.
Fast forward 25 years into the future: Let's assume I'm FIREd by then and living completely off investments before I can start drawing my pensions. Let's further assume that interest and dividends do not cover my living expenses, so I need to sell a small part of my portfolio each year.
What do I sell first? The pre-2009 funds with non-taxable capital gains to avoid paying taxes? Or should I leave these untouched as long as possible?
Of course this is rather hypothetical as the tax legislation will probably change several times over the next decades...
Because of that legal change, I had always planned to leave these funds untouched for a looong time - possibly forever. It makes sense to just let these stocks appreciate in value IF I EVER INTEND TO SELL THEM. But what if I'm living off investments and not touching the principal? It doesn't matter if any unrealized capital gains are taxable or not, or am I missing something? 1,000 EUR invested under the old rule will produce the same amount of dividend income as 1,000 EUR invested after 2008, right? And those dividends are taxable under both scenarios.
Fast forward 25 years into the future: Let's assume I'm FIREd by then and living completely off investments before I can start drawing my pensions. Let's further assume that interest and dividends do not cover my living expenses, so I need to sell a small part of my portfolio each year.
What do I sell first? The pre-2009 funds with non-taxable capital gains to avoid paying taxes? Or should I leave these untouched as long as possible?
Of course this is rather hypothetical as the tax legislation will probably change several times over the next decades...