Is Capital Gains harvesting a thing?

[AirTimeMD]

The 2021 long-term capital gains rate is 0% for up to $80,800 for an individual that is married filing jointly.

I have $1.2M in my taxable vanguard account, primarily invested in total stock index funds.

I don't need any of the money in my taxable account to live and don't anticipate that I will for 10-20 years.

Should I/Can I: sell enough shares to realize $80,800 in long-term capital gains in 2021 at 0%, then buy back into the same exact funds to increase my cost basis on the $80,800?

To me, this would make sense as it would increase my cost basis while not costing me anything in taxes. Over 10-20 years, the cumulative impact of doing this would be huge.

It sounds too good to be true. Am I missing something?

[Hyperchicken]

Yes, it is very much a thing, just like you described.

[sycamore]

Yes, it is very much a thing, just like you described.

Indeed, there's even a Bogleheads wiki article on it Tax gain harvesting.

[02nz]

It's a thing, so much so that it's described in the wiki : https://www.bogleheads.org/wiki/Tax_gain_harvesting

[yog]

Is your other income zero?

[David Jay]

It sounds too good to be true. Am I missing something?

The $80,800 does not stand alone, it interacts with your other income. Unless you are receiving no interest or dividends and living exclusively from Roth you will likely have less than $80,800 to play with.

[MarkBarb]

Yes, but....

You can do this. I do it with my kids who are in college.

But that $80K limit is based on your total AGI. It isn't a capital gains only thing. I assume that you are spending money. It must be coming from somewhere. If you're still working and earning money or if you're living on a pension or something, you've got income. Your capital gains tax rate starts at the top of that income. So if you make $100,000 a year and you take a $10,000 long term capital gain, that will be taxed at 15%, no 0%.

[RedDog]

Don’t forget to account for possible state taxes.

[samsoes]

The $80,800 includes all of your other taxable* income. Capital gains at 0% will exist only in the residual space between your other taxable income and the $80,800 boundary.

* Income after deductions.

[AirTimeMD]

I'm sorry to the board.

I did not realize that there was a wiki until shortly after I made the post. Thank you all for chiming in. My mistake was that I did not make the connection that ordinary income is relevant to LT capital gains tax rates. In my crazy head, I for a moment thought I could earn $600k/year while simultaneously increasing my cost basis on $80,800 per year with the strategy... :-/

[Silk McCue]

I'm sorry to the board.

I did not realize that there was a wiki until shortly after I made the post. Thank you all for chiming in. My mistake was that I did not make the connection that ordinary income is relevant to LT capital gains tax rates. In my crazy head, I for a moment thought I could earn $600k/year while simultaneously increasing my cost basis on $80,800 per year with the strategy... :-/

No need to apologize one single bit.

Cheers

[assyadh]

Don't forget about the standard deduction. You can get more than 80k tax free

[firebirdparts]

Don't forget about the standard deduction. You can get more than 80k tax free

Not if you have a $600,000 salary.

[cchrissyy]

Yes gains harvesting is a thing, for people with low enough other income.
For example, I did it in college.
And I do it for my kids accounts now.

But now that you say you have very high earned income, no, this tactic is not for you.

[espressofreak]

I am investigating doing long-term capital gains harvesting this year, in our Vanguard brokerage account, and I am confused a bit about the mechanics of it. All of the TLH blogs and step-by-step examples I've seen mention how, when you sell VTSAX, and exchange with some other fund, Vanguard informs you that you cannot buy back in to VTSAX for at least 30 days. So, from a "trading mechanics" POV, how would I do TGH, since I'd want to sell VTSAX, and then immediately buy back into VTSAX with the total amount I had just sold? Do I need to buy into something else for 31 days, and then buy back into VTSAX, selling that holding?

I appreciate any light y'all can shed on this situation.

[llin]

The warning applies to tax loss harvesting. In a gain situation there's no wash sale so you can sell and re-buy immediately.

[zero_coupon]

I am investigating doing long-term capital gains harvesting this year, in our Vanguard brokerage account, and I am confused a bit about the mechanics of it. All of the TLH blogs and step-by-step examples I've seen mention how, when you sell VTSAX, and exchange with some other fund, Vanguard informs you that you cannot buy back in to VTSAX for at least 30 days. So, from a "trading mechanics" POV, how would I do TGH, since I'd want to sell VTSAX, and then immediately buy back into VTSAX with the total amount I had just sold? Do I need to buy into something else for 31 days, and then buy back into VTSAX, selling that holding?

I appreciate any light y'all can shed on this situation.

The warning applies to tax loss harvesting. In a gain situation there's no wash sale so you can sell and re-buy immediately.

The concern is not regarding wash sales. I believe Vanguard restricts one from immediately repurchasing a mutual fund one has sold. Thus, one must buy a similarly-performing substitute fund and hold it for a month. Alternatively, one could convert the fund to the ETF share class, sell it, and immediately repurchase it.

[EdNorton]

Yes. Been retired about 8 years. Pensions and other income were about $30k. First couple of years, I tax gain harvested, then made the decision to do Roth conversions in lieu of the 0% cap gains tax rate. When I did tax gain harvest, my AGI would be about $100k and Fed taxes about $4k (MFJ).

[bluesherry]

Question with a twist - I am no longer working, but my husband is. I personally have large capital gains in Individual investment accounts that I would like to start harvesting over time…am I able to do this even with my husband’s $300K+ income by using the Married Filing Separate tax status?

[privateer79]

Question with a twist - I am no longer working, but my husband is. I personally have large capital gains in Individual investment accounts that I would like to start harvesting over time…am I able to do this even with my husband’s $300K+ income by using the Married Filing Separate tax status?

I'm not an expert, but it seems like you would be able to do this (up to something like ~42k in gains in the 0% bracket).... but also I would think your husband might get hit pretty hard moving from MFJ-> MFS moving from top bracket 24% to 32%... so it might be worth hypothetically penciling it out both ways and seeing which is the better outcome for your family...