Tax Gain Harvesting?

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Tax Gain Harvesting?

Post by CheChe » Sun Nov 20, 2016 5:26 pm

I've followed this forum on and off for a few years and learned so much! Thank you! Because of your advice I have a high savings rate, and a fair understanding of how to invest my money. My question now pertains to tax gain harvesting:

I'm going to be in a very low tax bracket for 2016 (15%), and wanted to see if now would be a good time to sell funds in my taxable accounts so that I can avoid paying capital gains in the future. I've read a few articles on tax gain harvesting, which seem to indicate that selling and then purchasing again is the way to go, but wanted to corroborate this research with the forum's expertise!

Any thoughts? Reasons why tax gain harvesting isn't a good idea?

Thanks! :happy

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Re: Tax Gain Harvesting?

Post by MikeG62 » Sun Nov 20, 2016 5:40 pm

Sounds like that may well make sense given your low tax rate this year. I assume these are long-term cap gains, so the tax rate would be zero.
Last edited by MikeG62 on Sun Nov 20, 2016 5:42 pm, edited 1 time in total.
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Re: Tax Gain Harvesting?

Post by triceratop » Sun Nov 20, 2016 5:41 pm

Welcome to the forum!

It's a great idea, in my opinion, especially if you anticipate not being in the 15% federal tax bracket in future tax years. One thing to keep in mind is that you may have to pay state taxes at your marginal income tax rate on any gains. Another thing to be careful of is to use SpecID tax lot identification so that you only sell tax lots with long-term gains (eligible for the 0% federal tax treatment)

Note: This will position you well to tax loss harvest if there are significant declines off of the current all-time stock market highs. That's a worry for 2017.
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Re: Tax Gain Harvesting?

Post by DSInvestor » Sun Nov 20, 2016 5:42 pm

Tax gain harvesting would not be a good idea if:
1) You have capital loss carryovers as you will use up the losses to offset the gains.

2) If the additional capital gain income would cause you to lose or substantially reduce your ACA premium subsidy. There was a recent poster who realized a 38K capital gain which could cause him to lose a $1000/month ACA premium subsidy.

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Re: Tax Gain Harvesting?

Post by CheChe » Mon Nov 21, 2016 2:22 pm

Awesome! Thanks! It sounds like selling and realizing the gains is a good move for me. I'm still on my parent's insurance, so I don't have to worry about health insurance juuust yet (although I am aware that ACA may go away, or, at the very least change, given our president-elect's campaign promises.) I have no capital losses (I'm young, and just started a few years ago). I want to make sure that I only harvest the long term gains: can you clarify what SpecID tax lot identification is? Is this a checkbox I will use when I go to sell on the Vanguard website? And should I sell and then immediately buy the same fund again?

Ultimately, we're not talking about a whole lot of money here (under 20K in gains), but I feel like this is just a good practice for the future when I have more money to work with and when I start to make more money after grad-school.

I really appreciate your help! :happy

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Re: Tax Gain Harvesting?

Post by goingup » Mon Nov 21, 2016 4:08 pm

Never have done tax gain harvesting. Our whole goal has been to contribute, accumulate and compound. You have to be honest with yourself to be sure you're not just going to pocket profits and scurry to the sidelines (cash). From my point of view, learning how to cash out investments is not a good habit to develop. Stay invested. :beer

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Re: Tax Gain Harvesting?

Post by young-ish » Mon Nov 21, 2016 6:41 pm

Sounds like you have a good grasp on the topic.

You may want to read this Mad Fientist article just in case you missed something...

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