Capital gains (What to do?)

[sonowwhat?]

Not sure what to do here. I have sizable tax loss carry-forwards and unfortunately they do not match up well in terms of long/short unrealized gains.

Short-term
Loss Carryforward to 2012 - $198,000
Unrealized Stock Capital Gains - $7,000
Unrealized Bond Capital Gains - $2,500

Long-term
Loss Carryforward to 2012 - $51,000
Unrealized Stock Capital Gains - $363,000
Unrealized Bond Capital Gains - $135,000
Realized Capital Loss (2012) on Real Estate transaction $300,000

I'm retired, and in 2011 I had about 100k in investment earnings and taxable income of $80k after itemizing and exemptions.

I am thinking through a few scenarios.

1) Sell and reinvest to recognize all gains now yielding about a net long term capital gain of $147k and pony up the 15% (22k in taxes). I would still have about the $189k short term loss carry-forward.

2) Sell enough to eat up the capital losses both realized and carried-forward from 2011 so as to hopefully recognize some gains on reinvested funds that I could sell short term to eat up that short term carry-forward.

Bottom line. I just dont know what to do or how to think through it. Need to decide quickly though so any help would be appreciated.

[livesoft]

3) Don't sell and don't worry.

I don't understand why you need to realize gains at all.

BTW, if you sell and realize gains, both your long-term and short-term losses will offset those gains. For example, if you sell and realize only long-term gains, you will offset long-term losses first, but if the long-term losses do not cover all your long-term gains, then the excess long-term gains will be covered by your short-term carryover losses.

If I needed to sell some things in order to pay expenses in 2013, I would sell things with the highest cost basis that would use up the least amount of carryover losses. My taxable income in 2013 would then only come from dividends and IRA converssions to Roth. I would probably have no taxable income in that scenario.

[The Wizard]

3) Don't sell and don't worry.

I don't understand why you need to realize gains at all.

BTW, if you sell and realize gains, both your long-term and short-term losses will offset those gains. For example, if you sell and realize only long-term gains, you will offset long-term losses first, but if the long-term losses do not cover all your long-term gains, then the excess long-term gains will be covered by your short-term carryover losses.

So the idea is to keep the whole appreciated pile as a security blanket, with the knowledge that eventually the gains will go untaxed when someone inherits the whole remaining pile?

[sonowwhat?]

3) Don't sell and don't worry.

I don't understand why you need to realize gains at all.

is there no merit in selling enough to eat up the LTcarry-forwards (no taxes) so I can reinvest and hopefully get ST gains to utilize the ST carry-forward?

[sscritic]

1) Sell and reinvest to recognize all gains now yielding about a net long term capital gain of $147k and pony up the 15% (22k in taxes). I would still have about the $189k short term loss carry-forward.

This is not correct, as livesoft points out. Fill out a fake Schedule D today assuming you sell everything. What do you get?

round numbers:
gain 10 + 250 + 150 = 410
loss 200 + 50 + 300 = 550
Which is bigger? Now all you have to do is figure out what lines of Schedule D and Form 8949 to use.

[livesoft]

3) Don't sell and don't worry.

I don't understand why you need to realize gains at all.

is there no merit in selling enough to eat up the LTcarry-forwards (no taxes) so I can reinvest and hopefully get ST gains to utilize the ST carry-forward?

There is no merit. Your short-term gains will hopefully become long-term gains just by waiting. If you need to rebalance, you can without tax consequences because of those carryover losses. You want them around for future rebalancing activities and do not want to waste them by selling for no reason.

Also I edited my previous post to add:

If I needed to sell some things in order to pay expenses in 2013, I would sell things with the highest cost basis that would use up the least amount of carryover losses. My taxable income in 2013 would then only come from dividends and IRA converssions to Roth. I would probably have no taxable income in that scenario.

[sonowwhat?]

If I needed to sell some things in order to pay expenses in 2013, I would sell things with the highest cost basis that would use up the least amount of carryover losses.

What is the reason for this. I am unclear on why utilizing the carry-forwards or stockpiling them is preferable one way or the other?

[livesoft]

So you don't have to pay taxes in the future. See also: viewtopic.php?t=87471

[sonowwhat?]

This is not correct, as livesoft points out. Fill out a fake Schedule D today assuming you sell everything. What do you get?

round numbers:
gain 10 + 250 + 150 = 410
loss 200 + 50 + 300 = 550
Which is bigger? Now all you have to do is figure out what lines of Schedule D and Form 8949 to use.

Sorry for not following but wouldn't total gains be $507,500 (7+2.5+363+135) and I am not right in thinking that short term loss carry-forwards can only offset short term gains not long term gains?

[sscritic]

This is not correct, as livesoft points out. Fill out a fake Schedule D today assuming you sell everything. What do you get?
[bad numbers]

Sorry for not following but wouldn't total gains be $507,500 (7+2.5+363+135) and I am not right in thinking that short term loss carry-forwards can only offset short term gains not long term gains?

$100k here, $100k there. My mistake. Yes, 510 vs 550, not 410 vs 550. Yes, you are not right in your thinking. That's what livesoft said way back at the beginning:

BTW, if you sell and realize gains, both your long-term and short-term losses will offset those gains.

That's why I recommended to you to fill out a fake Schedule D. Then you will see how short and long term are combined (and where and when on the form). I like filling out forms as a way to learn about taxes. It's what you have to do in the end anyway.

[jebmke]

That's why I recommended to you to fill out a fake Schedule D.

No substitute for this exercise. In fact, with my new volunteers at TaxAide training, we insist on them doing a couple of moderately complex returns by hand, repeating in the software and then reconciling any differences. We don't expect them to remember how some of the more intricate calcs work but we like them to follow the bouncing ball at least once.

[livesoft]

I am not right in thinking that short term loss carry-forwards can only offset short term gains not long term gains?

You are not right.

Short-term losses can offset short- AND long-term gains.
Long-term losses can offset short- AND long-term gains.

But it is not as simple as that.