Tax gain harvesting question

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jjunk
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Tax gain harvesting question

Post by jjunk »

I currently have ~47K in short term losses and ~5K in long term losses booked in my taxable account. Originally, I'd been planning on using these in retirement to offset capital gains. Given that my annual expenses in retirement are likely to be in the 60-70K/yr range, after using dividends to cover some expenses, its unlikely I'll need to sell enough assets in any given year where I'd cross the 0% tax bucket for capital gains where taxes would come into play (78K for married filing jointly limit).

I have ~425K in long term capital gains sitting in my taxable right now. Would a better approach be to harvest some of these gains now and offset them with my current capital losses? If so, is my assumption correct that I want to gain harvest those with the lowest cost basis first so that I have a higher cost basis on the remaining shares moving forward?
megabad
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Re: Tax gain harvesting question

Post by megabad »

jjunk wrote: Fri Apr 26, 2019 9:58 am I currently have ~47K in short term losses and ~5K in long term losses booked in my taxable account. Originally, I'd been planning on using these in retirement to offset capital gains. Given that my annual expenses in retirement are likely to be in the 60-70K/yr range, after using dividends to cover some expenses, its unlikely I'll need to sell enough assets in any given year where I'd cross the 0% tax bucket for capital gains where taxes would come into play (78K for married filing jointly limit).

I have ~425K in long term capital gains sitting in my taxable right now. Would a better approach be to harvest some of these gains now and offset them with my current capital losses? If so, is my assumption correct that I want to gain harvest those with the lowest cost basis first so that I have a higher cost basis on the remaining shares moving forward?
Your annual expenses may not have any bearing on what your income and tax bracket are in retirement so be careful using that assumption. In your case, since you don't need the money, if you want to leave to heirs, I would think it would be most beneficial to deduct your carryover losses from income each year and sit on your gains.
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jjunk
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Re: Tax gain harvesting question

Post by jjunk »

megabad wrote: Fri Apr 26, 2019 10:53 am Your annual expenses may not have any bearing on what your income and tax bracket are in retirement so be careful using that assumption. In your case, since you don't need the money, if you want to leave to heirs, I would think it would be most beneficial to deduct your carryover losses from income each year and sit on your gains.
Thanks. I dont have any heirs to leave money to, so anything left in my accounts when I'm dead will go to charity. Does that have any impact on your feedback?

Additionally, when you say expenses have no income on tax bracket, can you give me an example of what you're thinking there? I've been looking at my annual income as a combination of any dividend income + capital gains needed to meet spending. Initially, dividends will account for ~50% of my needs given my taxable account is the largest portion of my holdings, so cap gains should be small, if any. Is there another income source I should be considering as taxable that I'm missing?
sport
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Re: Tax gain harvesting question

Post by sport »

Capital losses have to be reported on your taxes in the year that they occur. You have to use them to offset any capital gains for the year and then another $3000 offsets ordinary income. Any remaining losses carry over to future years. You cannot save them up.
megabad
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Re: Tax gain harvesting question

Post by megabad »

jjunk wrote: Fri Apr 26, 2019 11:00 am
megabad wrote: Fri Apr 26, 2019 10:53 am Your annual expenses may not have any bearing on what your income and tax bracket are in retirement so be careful using that assumption. In your case, since you don't need the money, if you want to leave to heirs, I would think it would be most beneficial to deduct your carryover losses from income each year and sit on your gains.
Thanks. I dont have any heirs to leave money to, so anything left in my accounts when I'm dead will go to charity. Does that have any impact on your feedback?
Not really. The key is that you deduct the maximum from income first every year (and don't use up all your losses on capital gains). As long as you are able to do that, it seems like you are just debating when to pay 0% tax on the rest.

Additionally, when you say expenses have no income on tax bracket, can you give me an example of what you're thinking there? I've been looking at my annual income as a combination of any dividend income + capital gains needed to meet spending. Initially, dividends will account for ~50% of my needs given my taxable account is the largest portion of my holdings, so cap gains should be small, if any. Is there another income source I should be considering as taxable that I'm missing?
Most people are "forced" to take income of some kind in retirement which can create a disconnect between income and expenses. Examples of this are pensions, annuities, Social Security, RMDs, etc. It will depend on your personal situation whether this number is over your expenses or not.
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jjunk
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Re: Tax gain harvesting question

Post by jjunk »

@megabad I see, thanks for the additional info. I will "hopefully" have SS at some point in retirement (I'm only 45 atm) but its not something I've spent much time worrying about aside from knowing what my estimated benefits are. My assumption was that by the time any funds hit there, it would likely replace the portion of taxable I'd already spent meaning a small net impact on taxes. Maybe I need to reassess how seriously I'm looking into that.

@sport Sorry, poor wording on my part. I understand that they offset existing capital gains and then 3k of income. The portion of I have remaining in my original post reflect the remaining carryover from 2018. megabad's assessment was accurate, I'm trying to effectively determine when it makes the most sense to take the 0% tax
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