TLH and effect on MAGI

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chabil
Posts: 350
Joined: Tue Feb 14, 2012 9:38 pm
Location: North of Boston

TLH and effect on MAGI

Postby chabil » Sun Mar 19, 2017 5:42 pm

We are retired and in the 25% tax bracket.
I have also been doing some TLH and using it to weed out the taxable account of some tax-inefficient funds, such as REITs and other Bond funds that should not have been there in the first place (pre-Boglehead days :oops: ) and incur capital gains.In addition we also convert a small amount of TIRA to Roth after taking my husband's annual MRW.
I have a question.
Although the TLH sets off against the cap. gains do they still count as ordinary income for MAGI calculation? If so I may have to stop doing both because soon I will be taking my MRW as well as I will be turning 67 this year.

DSInvestor
Posts: 10257
Joined: Sat Oct 04, 2008 11:42 am

Re: TLH and effect on MAGI

Postby DSInvestor » Sun Mar 19, 2017 5:57 pm

Net capital gains are included in AGI. If you realize 30K capital gain and 25K capital loss, you have a net capital gain of 5K. Your AGI is increased by 5K in this example.

If you realize 30K capital gain and realize 50K capital loss, you have a net capital gain of -3000 and a 17K capital loss carried forward to next tax year. Your AGI is reduced by 3000 in this example.

If you have been reinvesting dividends in your bond funds, your cost basis may be much higher than you think resulting in smaller capital gains.

Once you have your AGI, that's the starting point for MAGI (Modified Adjusted Gross Income). Note that there are many different MAGIs that make different modifications (e.g. MAGI for Roth IRA purposes, MAGI for Traditional IRA purposes).

kaneohe
Posts: 3999
Joined: Mon Sep 22, 2008 12:38 pm

Re: TLH and effect on MAGI

Postby kaneohe » Sun Mar 19, 2017 6:04 pm

chabil wrote:..................................
Although the TLH sets off against the cap. gains do they still count as ordinary income for MAGI calculation? If so I may have to stop doing both because soon I will be taking my MRW as well as I will be turning 67 this year.


I'm a bit confused...........what is they (bolded above)? Are you talking about TLH? Which MAGI are you concerned about? IRMAA?
TLH is negative capital gains. They reduce your AGI but selling stocks/funds at a profit increases your capital gains and AGI. Doing both has
a net effect depending on which is larger.

chabil
Posts: 350
Joined: Tue Feb 14, 2012 9:38 pm
Location: North of Boston

Re: TLH and effect on MAGI

Postby chabil » Sun Mar 19, 2017 6:31 pm

Let me restate my question.
After setting the Cap Loss against all Cap gains I end up with net loss (carried over) and reduced AGI
What I am wondering is what effect this has on the Medicare insurance we pay via Social Security. Do they (whoever calculates these things) ADD BACK the cap gains as income regardless of the cap loss to figure what our cost of premium is?

kaneohe
Posts: 3999
Joined: Mon Sep 22, 2008 12:38 pm

Re: TLH and effect on MAGI

Postby kaneohe » Sun Mar 19, 2017 7:13 pm

much better! see p.5 here https://www.ssa.gov/pubs/EN-05-10536.pdf

"Your MAGI is your
total adjusted gross income and tax-exempt interest income."

but it is good to wonder about such things as you do since there are some "incomes" where the losses are disregarded. Not here tho.


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