when is it better to take short term capital gain

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viewer0
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when is it better to take short term capital gain

Post by viewer0 » Thu Jul 12, 2018 12:39 pm

Is there any time based on accrued income, it is better to take short term gain than long term gain ? I have a vague understanding that after a certain income accrued long term gains are not taxed at 20% + 3.8% NIIT and it is better to take short term gains and keep the long term gains for the following year. I fall under 37% tax bracket for 2018. ( salary etc : $350K + Long term capital gains realized so far : $440K + short term capital gains realized so far : $40K)

Based on the above situation, what is best for me to do for further gains : accrue long term or short term capital gains.

can anyone elaborate please ?
TIA
Last edited by viewer0 on Thu Jul 12, 2018 1:33 pm, edited 2 times in total.

ExitStageLeft
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Re: when is it better to take short term capital gain

Post by ExitStageLeft » Thu Jul 12, 2018 12:57 pm

I don't think there's ever a point, under current tax law, where it is preferable to take a short term gain over a long term one. Short term gain is going to be taxed at 40.8% (37% + 3.8% NIIT) and a long term one is going to be taxed at 23.8%. Maybe for loss aversion one might need to sell before the required holding time.

Were I lucky enough to have this problem I would take the LTCG and hold onto the $40k gain until it becomes long term. Does delaying some of the gains until next year lower your tax bracket?

ryman554
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Re: when is it better to take short term capital gain

Post by ryman554 » Thu Jul 12, 2018 1:12 pm

viewer0 wrote:
Thu Jul 12, 2018 12:39 pm
Is there any time based on accrued income, it is better to take short term gain than long term gain ? I have a vague understanding that after a certain income accrued long term gains are not taxed at 20% + 3.8% medicare tax and it is better to take short term gains and keep the long term gains for the following year. I fall under 37% tax bracket for 2018. ( salary etc : $350K + Long term capital gains accrued so far : $440K + short term capital gains accrued so far : $40K)

Based on the above situation, what is best for me to do for further gains : accrue long term or short term capital gains.

can anyone elaborate please ?
TIA
At your salary, why do you need gains at all? Just quit investing for a bit.

Take short term gains if you have existing capital losses you need to account for. Otherwise, it's much better to take the long-term gains and wait for hte short term to become long term.

I will add that you should *never* be in a position to need to deal with short term gains unless you're exercising RSU/options/... where the gain is minimal and not worth worrying about. You should have an emergency fund to cover that stuff, and you should be rebalancing by adding new money in taxable accounts, not by selling and exchanging. You're going to be in a short term gain position if you are changing investments a lot and/or investing in single stocks and/or using investment money for a planned expense you knew about. All of which bogleheads frown upon. (for the latter, it should be out of the market and/or cash-flowed).

viewer0
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Re: when is it better to take short term capital gain

Post by viewer0 » Thu Jul 12, 2018 1:24 pm

Thanks for the quick responses. My short term capital gains are from expired options.
The reason I thought that at some point short term gains are worth taking is the AMT sweet spot / AMT bump. At the AMT sweet spot, it is advisable to accrue income until I hit the next higher bracket.
My investments are very much tech focussed ( AMZN, FB, AAPL) also some 3x leveraged; hence want to get out of the market and then make a conservative investment.
For 2019, I will not sell as much and reap gains and hence will be at a lower bracket.

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grabiner
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Re: when is it better to take short term capital gain

Post by grabiner » Thu Jul 12, 2018 8:46 pm

If you have capital losses exceeding your gains, it doesn't matter whether your gain is short-term or long-term (unless you have both types of gains in the year that your carryovers run out). Therefore, it is worth taking a short-term gain instead of a slightly larger long-term gain.
Wiki David Grabiner

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House Blend
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Re: when is it better to take short term capital gain

Post by House Blend » Thu Jul 12, 2018 9:31 pm

grabiner wrote:
Thu Jul 12, 2018 8:46 pm
If you have capital losses exceeding your gains, it doesn't matter whether your gain is short-term or long-term (unless you have both types of gains in the year that your carryovers run out). Therefore, it is worth taking a short-term gain instead of a slightly larger long-term gain.
Agreed. Here's another scenario where you might prefer a ST gain:

You need $10,000 in cash. No capital losses available.

You can raise the cash with a short term gain of $100, or a long term gain of $1000.

You'll certainly pay less tax up front if you sell the short term shares. Whether that's better in the long run depends on if/when you'll need to sell the other lot.

If it's far in the future, or never (donation), selling the ST shares is a win.

However, if you can forsee selling the other lot a year from now, then depending on the rates involved (say 40% vs. 24%), it's a question of paying $40 now and $240 more a year later, or $240 now and $24 more later. So taking the ST gains now means you'd accept a $200 loan now in exchange for paying $216 a year later--that's 8% simple interest.

viewer0
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Re: when is it better to take short term capital gain

Post by viewer0 » Fri Jul 13, 2018 6:42 am

I do not have capital losses yet.
I have some in the money FB 195 options expiring today. I was rolling that strike price for the last 4 weeks. I am thinking of buying the options back and hence incur some capital loss that would offset my short term gain. Good idea ?

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