Tax Loss Harvesting question

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tinkerman79
Posts: 29
Joined: Wed Jan 29, 2014 8:16 am

Tax Loss Harvesting question

Post by tinkerman79 »

I am taking a career break starting in a week, which means my income for 2023 will be substantially lower than in 2022. I will also be using ACA-subsidized health insurance for a majority of 2023, which means I need to hit a minimum MAGI of 200% FPL for 2023. Below that level, I would need to go with Medicaid for my kids (TX resident) and I want to avoid that if possible.

I will rely on dividends/capital gains earned throughout the year in 2023 to fund a portion of my living expenses. The rest will be funded through selling some of my taxable portfolio before Dec 31, 2022.

Is there any scenario in my situation where I should not maximize my ST/LT capital losses this year? My main concern is carrying too much ST/LT cap losses into next year that might then interfere with the minimum MAGI target I need to achieve for the ACA subsidy. I do have the opportunity to do IRA-to-Roth conversions to bump up my reported MAGI next year.

I have never done TLH or IRA-to-Roth conversions before, so want to know if I am thinking through this correctly.
rkhusky
Posts: 14065
Joined: Thu Aug 18, 2011 8:09 pm

Re: Tax Loss Harvesting question

Post by rkhusky »

tinkerman79 wrote: Thu Nov 24, 2022 5:50 am Is there any scenario in my situation where I should not maximize my ST/LT capital losses this year? My main concern is carrying too much ST/LT cap losses into next year that might then interfere with the minimum MAGI target I need to achieve for the ACA subsidy. I do have the opportunity to do IRA-to-Roth conversions to bump up my reported MAGI next year.
If your capital gains would be in the 0% LTCG bracket (AGI < $58475 for single, AGI < 116950 for MFJ), then you don't want to TLH.

But since you can do Roth conversions to bring your non-cap-gain income to the top of the 0% LTCG bracket, you can probably avoid that from happening. You would want to do Roth conversions such that your income from dividends, interest and Roth conversions would equal the top of the 0% LTCG bracket. Then all your capital gains that would normally be taxed at 15% would be offset by the losses. You would need to make sure that all your losses would be greater or equal to the cap gains you expect to realize.
Florida Orange
Posts: 438
Joined: Thu Jun 16, 2022 2:22 pm

Re: Tax Loss Harvesting question

Post by Florida Orange »

I would suggest maximizing losses now. Trying to hit a MAGI target for ACA purposes in future years is tricky; there's only so much you can do.
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