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capital gains timing.

Posted: Sun Nov 03, 2019 3:48 pm
by Westwing
It appears or income for 2019 will remain in the 12% federal bracket. This also leaves room for us to take about 10K in mutual fund capital gains from a taxable account for the year at 0%. This is a high cost, high er and high turnover account. We plan to do this. My question is does it really matter when I sell these? Have been doing some reading on selling prior to fund distributions to avoid the ordinary income. Am I on the right track? Our plan is to turn around and buy a very efficient taxable index fund, low cost with low turnover. Thanks for your help.

Re: capital gains timing.

Posted: Sun Nov 03, 2019 3:54 pm
by retired@50
Westwing wrote:
Sun Nov 03, 2019 3:48 pm
It appears or income for 2019 will remain in the 12% federal bracket. This also leaves room for us to take about 10K in mutual fund capital gains from a taxable account for the year at 0%. This is a high cost, high er and high turnover account. We plan to do this. My question is does it really matter when I sell these? Have been doing some reading on selling prior to fund distributions to avoid the ordinary income. Am I on the right track? Our plan is to turn around and buy a very efficient taxable index fund, low cost with low turnover. Thanks for your help.
Presumably if you sell now, you'll lock in the current capital gain you are referring to. If you wait until after the December dividend and possible additional short term and/or long term gains, who knows where the market will be...??? Regards,

Re: capital gains timing.

Posted: Sun Nov 03, 2019 11:15 pm
by MotoTrojan
Correct on selling before distributions. As to whether timing matters outside of that, I would say not, especially if you are immediately re-investing in a similarly exposed fund (albeit a cheaper and more tax-efficient one ideally).

Re: capital gains timing.

Posted: Mon Nov 04, 2019 12:10 pm
by chemocean
It would seem to me that it would not matter when you sold. If you waited until after the distribution, your capital gains on the selling would decrease. However, that decrease would be exactly balanced by income from capital gains distribution and dividends on the day of the distribution. Since capital gains distribution and qualified dividends would also be subject to 0% tax if you stay under the $77,200 taxable income limit (I think that is the amount in 2019) for a joint account, the only tax difference would be the amount of non-qualified dividends in the distribution. As a previous poster indicated, the distribution season is about 7 weeks away. A lot can happen to the market in the meantime.

Re: capital gains timing.

Posted: Mon Nov 04, 2019 10:02 pm
by grabiner
Westwing wrote:
Sun Nov 03, 2019 3:48 pm
It appears or income for 2019 will remain in the 12% federal bracket. This also leaves room for us to take about 10K in mutual fund capital gains from a taxable account for the year at 0%. This is a high cost, high er and high turnover account. We plan to do this.
If you have a high-cost, high-ER, high-turnover fund, you will probably be paying a lot in expenses and taxes in the future, so you would be best off getting rid of it all.

However, it is probably worth waiting two months so that you can take more of the gain tax-free. It's probably better to sell most of it now, planning to sell enough in January that you will just about use up the 0% tax rate next year. The reason it is better to sell more now is that the December distribution from the fund may include short-term capital gains, which you would like to avoid paying tax on.

Re: capital gains timing.

Posted: Mon Nov 04, 2019 10:07 pm
by ram
There seems to be no benefit in waiting. So if I were you, I would just get it done.

Re: capital gains timing.

Posted: Tue Nov 05, 2019 9:18 am
by Westwing
Many thanks for the solid advice and direction. I plan to exit my current account this week.