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How to calculate Capital Gain Taxes?

Posted: Mon Jul 15, 2019 10:02 am
by NYC1
Hello,

If I sell 400K in Vanguard Index 500 fund what is the approximate Capital Gains that I would be expected to pay? Is there a way to calculate this for the V Index 500 Fund?

Thanks in advance for your reply!

Re: How to calculate Capital Gain Taxes?

Posted: Mon Jul 15, 2019 10:55 am
by hillman
Best case scenario (assuming no losses): $0.00
Worst case scenario (assuming no basis, all short-term gains, you're subject to the Net Investment Income Tax, and you're a NYC resident): $213,984

More information would be needed to answer this question in a helpful manner.
Specifically:
1 - When were the investments purchased?
2 - How much was paid for each unit of investment purchased?
3 - What will be the expected taxable income and filing status for the year of the sale?

This will determine (1) long- or short-term treatment of the gains, (2) the cost basis that offsets the proceeds in determining the gain, and (3) which preferential rates (0%, 15%, 20%) (and possible surtaxes, 3.8% NIIT) would apply in your situation.

Re: How to calculate Capital Gain Taxes?

Posted: Mon Jul 15, 2019 11:00 am
by fposte
NYC1 wrote:
Mon Jul 15, 2019 10:02 am
Hello,

If I sell 400K in Vanguard Index 500 fund what is the approximate Capital Gains that I would be expected to pay? Is there a way to calculate this for the V Index 500 Fund?

Thanks in advance for your reply!
If you go to the "Cost Basis" link under "Accounts" in the Vanguard website, it will show you your unrealized gains. If you have different lots bought at different times, the "Show Details" arrow will break the gains down by lot. If you're at another brokerage I imagine there will be something similar in their platform.

Re: How to calculate Capital Gain Taxes?

Posted: Tue Jul 16, 2019 9:43 pm
by random_walker_77
Once you have your cost basis, you'll need to figure out how much you'll be taxed on gains. I.e. if you cost basis is $300K and you sell for $400K, then you've got $100K of gains, on which you'll pay federal/state/(and maybe new york city?) taxes.

Federal taxes depend on your tax bracket, in a low enough bracket, some of these gains could fill the low bracket and be taxed at a rate of 0%. More typically, it'd be either 15%/20%/23.8%, depending on how much other income you have.

for an explanation, and bracket thresholds, see https://www.fool.com/retirement/2018/12 ... -2019.aspx

Re: How to calculate Capital Gain Taxes?

Posted: Wed Jul 17, 2019 6:48 am
by NYC1
First, thank you for taking the time to reply and to share your knowledge! Greatly Appreciated!

I wanted to provide some addition updates/insight on this topic:

1. My funds are with The Vanguard Group and I have been instructed that when you logon to your account there is a section called "Cost Basis" that can show you what each investment gain is classified as, short term vs. long term gains. I will try and calculate what my tax liability is using this information.

2. I have become aware that Vanguard has 2 different methods for selling funds. There is the First in First Out (FIFO) Method and there is a second method called "MIN TAX". This is some type of calculation where Vanguard will attempt to sell the funds that are of the lowest tax liability to the customer. This sounds like a great idea and not sure if others have heard of this method or if other investment firms even offer it? I just validates my decision to use Vanguard for my savings/retirement planning.

Re: How to calculate Capital Gain Taxes?

Posted: Wed Jul 17, 2019 7:08 am
by CppCoder
NYC1 wrote:
2. I have become aware that Vanguard has 2 different methods for selling funds. There is the First in First Out (FIFO) Method and there is a second method called "MIN TAX". This is some type of calculation where Vanguard will attempt to sell the funds that are of the lowest tax liability to the customer. This sounds like a great idea and not sure if others have heard of this method or if other investment firms even offer it? I just validates my decision to use Vanguard for my savings/retirement planning.
You want the method of basis tracking called specific ID. This will let you choose, individually, which tax lot you wish to sell thereby optimizing your basis by specific shares. Note, all of this is moot if you are selling your entire holding in the fund.

Re: How to calculate Capital Gain Taxes?

Posted: Wed Jul 17, 2019 7:12 am
by BL
In my Vanguard account, there is an option to set the cost basis method as Specific Id, which allows you to select the specific lots you want to sell. Each lot is the purchase you made on one day, which includes any re-investing you may do. It should show the "unrealized gains" for that purchase, which is the difference between the basis (purchase price) and current price. When you go to sell, you would click on each lot you want to sell, and know the capital gains for each lot.

Vanguard does this for any purchases you make (covered shares are reported to you on 1099-B and to the IRS) on or after Jan. 1, 2012; earlier purchases are non-covered shares and are reported at average cost basis to you (that basis is not reported to IRS because that was not required until 2012).

Specific Id seems to be the most popular method here on Bogleheads.