Tax loss harvest unnecessary for 10% and 15% bracket

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brianplycatu
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Tax loss harvest unnecessary for 10% and 15% bracket

Post by brianplycatu » Wed Jun 12, 2013 3:49 pm

Hello Bogleheads, The new tax law ( 2013 )states that a person in the 15% and 10 % brackets pays zero on cap gains and qualified dividends so if a person makes 57,000 gross income and subtracts 29,000 qualified dividends and 12,000 cap gains minis 10,000 standard deduction and personal exemption he/she if left with 6,000 taxable income at a 10% marginal rate. Right? If he/she harvests all the losses ( 12,000 ) it will make no difference because the taxable income will still be on 6,000. Is this correct?

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Frengo
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Re: Tax loss harvest unnecessary for 10% and 15% bracket

Post by Frengo » Wed Jun 12, 2013 3:59 pm

You wouldn't want to harvest losses; keep them for the time you are in a higher bracket. Instead, harvest gains as far as you remain in the 15% bracket.

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brianplycatu
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Re: Tax loss harvest unnecessary for 10% and 15% bracket

Post by brianplycatu » Wed Jun 12, 2013 4:14 pm

Frengo, thanks for the advice I didn't think of harvesting gains but I will now.

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indexfundfan
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Re: Tax loss harvest unnecessary for 10% and 15% bracket

Post by indexfundfan » Wed Jun 12, 2013 4:29 pm

brianplycatu wrote:Frengo, thanks for the advice I didn't think of harvesting gains but I will now.
It is not clear from the thread what is the intention of the assets. Nevertheless, only harvest the gains if you know that you might eventually sell when you are in a higher tax bracket.

However, if the money invested will be passed on to heirs, do not tax harvest since the heirs will receive a step-up basis on receiving the assets.
My signature has been deleted.

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BolderBoy
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Re: Tax loss harvest unnecessary for 10% and 15% bracket

Post by BolderBoy » Wed Jun 12, 2013 4:32 pm

indexfundfan wrote:Nevertheless, only harvest the gains if you know that you might eventually sell when you are in a higher tax bracket.
If the gains can be harvested at zero tax liability, is there ever a downside to harvesting them?

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brianplycatu
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Re: Tax loss harvest unnecessary for 10% and 15% bracket

Post by brianplycatu » Wed Jun 12, 2013 4:43 pm

Indexfundfan, The intention of the assets is to grow longer than my lifetime without liquidation of principle. Thanks for that information now I will not harvest gains.

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brianplycatu
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Re: Tax loss harvest unnecessary for 10% and 15% bracket

Post by brianplycatu » Wed Jun 12, 2013 4:51 pm

BolderBoy, The Franchise Tax Board in California treats capitol gains as ordinary income so a person could pay the total state liability if he/she is in a high state income bracket.

DickBenson
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Re: Tax loss harvest unnecessary for 10% and 15% bracket

Post by DickBenson » Wed Jun 12, 2013 6:33 pm

If the gains can be harvested at zero tax liability, is there ever a downside to harvesting them?
If you have a credit of realized losses from prior years, then any realized gains this year will have to offset those losses before the remaining gains can be taxed at 0% or any other percentage. This is one of the reasons why some may prefer not to harvest and bank losses.

Dick

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Re: Tax loss harvest unnecessary for 10% and 15% bracket

Post by grabiner » Wed Jun 12, 2013 6:41 pm

brianplycatu wrote:Hello Bogleheads, The new tax law ( 2013 )states that a person in the 15% and 10 % brackets pays zero on cap gains and qualified dividends so if a person makes 57,000 gross income and subtracts 29,000 qualified dividends and 12,000 cap gains minis 10,000 standard deduction and personal exemption he/she if left with 6,000 taxable income at a 10% marginal rate. Right? If he/she harvests all the losses ( 12,000 ) it will make no difference because the taxable income will still be on 6,000. Is this correct?
This is correct if your losses offset gains (although you may still avoid state tax, as some other posters have noted). However, if your losses exceed your gains, you can deduct $3000 a year against ordinary income, and that will save you $450 a year in the 15% bracket; a $12,000 capital loss this year may save you $1800 in tax in 2013-2016 if you don't take any gains.
Wiki David Grabiner

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brianplycatu
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Re: Tax loss harvest unnecessary for 10% and 15% bracket

Post by brianplycatu » Wed Jun 12, 2013 7:37 pm

grabiner wrote:
brianplycatu wrote:Hello Bogleheads, The new tax law ( 2013 )states that a person in the 15% and 10 % brackets pays zero on cap gains and qualified dividends so if a person makes 57,000 gross income and subtracts 29,000 qualified dividends and 12,000 cap gains minis 10,000 standard deduction and personal exemption he/she if left with 6,000 taxable income at a 10% marginal rate. Right? If he/she harvests all the losses ( 12,000 ) it will make no difference because the taxable income will still be on 6,000. Is this correct?
This is correct if your losses offset gains (although you may still avoid state tax, as some other posters have noted). However, if your losses exceed your gains, you can deduct $3000 a year against ordinary income, and that will save you $450 a year in the 15% bracket; a $12,000 capital loss this year may save you $1800 in tax in 2013-2016 if you don't take any gains.
David Grabiner, I am glad I posted this message because new information makes me think. At this point I have a 15K realized capitol gain minus 3K loss but as of today I am sitting on another 4K unrealized loss so If it amounts to -12K plus -3K total losses by the end of 2013 I CAN reduce federal income tax. I am in the 9% marginal California bracket so tax loss harvesting may still be profitable but not as much as before when my personal rate was 15 instead of zero.

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BolderBoy
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Re: Tax loss harvest unnecessary for 10% and 15% bracket

Post by BolderBoy » Wed Jun 12, 2013 8:19 pm

brianplycatu wrote:BolderBoy, The Franchise Tax Board in California treats capitol gains as ordinary income so a person could pay the total state liability if he/she is in a high state income bracket.
Ah. I failed to consider the state side of things. Thanks.

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