2018 UTMA tax gain harvesting

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mogg
Posts: 11
Joined: Mon Aug 22, 2016 9:33 pm

2018 UTMA tax gain harvesting

Post by mogg » Sun Aug 12, 2018 12:14 pm

Can you verify my understanding of UTMA tax rules? I'd like to harvest maximum gains in my kid's UTMA account without paying taxes. Hypothetically, assume the UTMA has:

$500 ordinary dividends for 2018
$20,000 unrealized long term capital gains that I can harvest over 15 years

My understanding of the 2018 kiddie tax rules is:
$1,050 - untaxed standard deduction
$1,050 - tax at child's tax rate, 0% for long term capital gains
0 to $2,599 - 0% Trust Tax Rate On Capital Gains & Qualified Dividends

So it seems that the UTMA can potentially have income of $1,050 + $1,050 + $2,599 = $4,699 without owing any tax.

To maximize the tax harvest in the UTMA, can the UTMA realize $4,699 - $500 (dividends) = $4,199 in long term capital gains in 2018 without paying any tax?

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FiveK
Posts: 5141
Joined: Sun Mar 16, 2014 2:43 pm

Re: 2018 UTMA tax gain harvesting

Post by FiveK » Sun Aug 12, 2018 12:25 pm

Without having the actual 2018 form 8615 available, what you describe appears correct. E.g., 2018 Kiddie Tax Rules And Rates and The ‘kiddie tax’ is getting easier (and maybe cheaper) under the new tax law - MarketWatch.

mogg
Posts: 11
Joined: Mon Aug 22, 2016 9:33 pm

Re: 2018 UTMA tax gain harvesting

Post by mogg » Sun Aug 12, 2018 10:41 pm

Thanks FiveK!

Spirit Rider
Posts: 8354
Joined: Fri Mar 02, 2007 2:39 pm

Re: 2018 UTMA tax gain harvesting

Post by Spirit Rider » Sun Aug 12, 2018 11:11 pm

Two points.

I don't know why you are stopping at $2599 and $4699. The 15% LTCG and QDIV rate bracket starts at $2,600. That means $2600 is taxed at the first bracket rates, not $2599.

Also, it is not as simple as a $1050 deduction and $1050 taxed at the child's rate. There are pro-rata worksheets for Line 5 in the Form 8615 instructions. These may or may not change the taxes depending on circumstances.

mogg
Posts: 11
Joined: Mon Aug 22, 2016 9:33 pm

Re: 2018 UTMA tax gain harvesting

Post by mogg » Mon Aug 13, 2018 7:32 am

Thanks Spirit Rider!

I read from previous posts that there are pro-rata rules, but assumed that as long as dividend income is under the standard deduction then the standard deduction would consume all of the dividend income. I guess I'll have to wait for the new 2018 before doing further tax planning.

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