LTCG Question

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CMLAW1
Posts: 134
Joined: Sun Sep 06, 2015 8:22 pm

LTCG Question

Post by CMLAW1 »

Bogleheads,

I need to get some cash to make some much needed renovations to my backyard and living room. I will need approximately 18k. I have a taxable account with a large balance and I have home equity too. My wife and I taxable income last year was ~50k.

Should I just sell stocks in my taxable account to get the money? It’s my understanding that because of my income I pay 0% LTCG tax?

Please advise where I should draw this money from. Some have suggested a home equity loan but I don’t believe that makes financial sense in my case.
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AlabamaPaul
Posts: 106
Joined: Sat Jul 18, 2020 2:45 pm

Re: LTCG Question

Post by AlabamaPaul »

I would never borrow when I had the funds readily available elsewhere, and yes, you are correct in that there would be no tax on the LTCG given the information provided...
petulant
Posts: 1901
Joined: Thu Sep 22, 2016 1:09 pm

Re: LTCG Question

Post by petulant »

The federal capital gains tax should be $0, but you may have to pay your state income tax rate on the gains (if you have a state income tax).
retiredjg
Posts: 41861
Joined: Thu Jan 10, 2008 12:56 pm

Re: LTCG Question

Post by retiredjg »

The 0% LTCG rate goes up to $80,000 taxable income (this is after deductions) for married filing jointly. If your income is similar to last year plus about $18k from taxable (not all of which is capital gains), there should be no federal tax.
Penguin
Posts: 607
Joined: Sat Mar 03, 2007 1:52 pm

Re: LTCG Question

Post by Penguin »

Be sure it is a long term capital gain. Short term capital gains are taxed as ordinary income.
If you reinvest your dividends then the reinvested dividends may be sold for a short term capital gain, if you sell the shares less than a year after you bought them then it is short term.
Jon
Topic Author
CMLAW1
Posts: 134
Joined: Sun Sep 06, 2015 8:22 pm

Re: LTCG Question

Post by CMLAW1 »

Penguin wrote: Mon Aug 31, 2020 11:43 am Be sure it is a long term capital gain. Short term capital gains are taxed as ordinary income.
If you reinvest your dividends then the reinvested dividends may be sold for a short term capital gain, if you sell the shares less than a year after you bought them then it is short term.
I do reinvest my dividends but I’ve held for longer than 1 year. Would I still pay 0% tax?
fyre4ce
Posts: 953
Joined: Sun Aug 06, 2017 11:29 am

Re: LTCG Question

Post by fyre4ce »

CMLAW1 wrote: Mon Aug 31, 2020 11:53 am
Penguin wrote: Mon Aug 31, 2020 11:43 am Be sure it is a long term capital gain. Short term capital gains are taxed as ordinary income.
If you reinvest your dividends then the reinvested dividends may be sold for a short term capital gain, if you sell the shares less than a year after you bought them then it is short term.
I do reinvest my dividends but I’ve held for longer than 1 year. Would I still pay 0% tax?
You would pay 0% on any shares you've held for longer than 1 year, and if you sell the shares that were reinvested dividends, you'd pay short-term capital gains rates on those.

I agree with others that I would prefer to sell the taxable assets than borrow against the home.
Hyperchicken
Posts: 368
Joined: Mon Mar 02, 2020 5:33 pm

Re: LTCG Question

Post by Hyperchicken »

May be best to manually specify tax lots to sell - both to make sure you realize long-term gains, and to minimize the gains by selling lots with higher cost basis first.

FIFO is probably a good enough approximation.
Penguin
Posts: 607
Joined: Sat Mar 03, 2007 1:52 pm

Re: LTCG Question

Post by Penguin »

CMLAW1 wrote: Mon Aug 31, 2020 11:53 am
Penguin wrote: Mon Aug 31, 2020 11:43 am Be sure it is a long term capital gain. Short term capital gains are taxed as ordinary income.
If you reinvest your dividends then the reinvested dividends may be sold for a short term capital gain, if you sell the shares less than a year after you bought them then it is short term.
I do reinvest my dividends but I’ve held for longer than 1 year. Would I still pay 0% tax?
Each purchase is a separate lot.
In 2018 you buy 100 shares at $10.00 per share. This lot is long term. Call it lot A
In December, 2019 you reinvest dividend of $50 at $10.10 per share. This lot is short term if you sell it today. Call it lot B.
However, you may sell only lot A and none of lot B and then it is a long term gain or loss.
Jon
earlyout
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Joined: Tue Feb 20, 2007 5:24 pm

Re: LTCG Question

Post by earlyout »

Hyperchicken wrote: Mon Aug 31, 2020 12:07 pm May be best to manually specify tax lots to sell - both to make sure you realize long-term gains, and to minimize the gains by selling lots with higher cost basis first.

FIFO is probably a good enough approximation.
If indeed you only need $18,000, and that would bring you total taxable income to less than $80,000, then you want to sell the shares with the lowest cost basis. You might even want to sell more and do some tax gain harvesting since you can do it without paying taxes on the long term gain.
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