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LTCG Question

Posted: Mon Aug 31, 2020 11:12 am
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.

Re: LTCG Question

Posted: Mon Aug 31, 2020 11:19 am
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...

Re: LTCG Question

Posted: Mon Aug 31, 2020 11:22 am
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).

Re: LTCG Question

Posted: Mon Aug 31, 2020 11:27 am
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.

Re: LTCG Question

Posted: Mon Aug 31, 2020 11:43 am
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.

Re: LTCG Question

Posted: Mon Aug 31, 2020 11:53 am
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?

Re: LTCG Question

Posted: Mon Aug 31, 2020 12:05 pm
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.

Re: LTCG Question

Posted: Mon Aug 31, 2020 12:07 pm
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.

Re: LTCG Question

Posted: Mon Aug 31, 2020 12:09 pm
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.

Re: LTCG Question

Posted: Mon Aug 31, 2020 12:13 pm
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.