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Should I tax harvest gain this year?

Posted: Fri Nov 15, 2019 2:42 pm
by jeff1949
I would like to tax gain harvest and I would like some advice. My goal would be to sell my taxable TSM fund to the point that I am still in the zero tax bracket for capital gains. Here are the particulars:

Married filing Jointly
$25k Social Security Income
$22k interest and dividends
$3k rental income
$60k for a TIRA to Roth IRA conversion

If I sold all of the taxable TSM fund I would have $44k in capital gains ($124k selling price with an $80k cost basis). How much (if any) can I sell and still be in the ZERO tax bracket for capital gains? Does the amount of Social Security Income play a roll in this calculation?

Thanks!

Re: Should I tax harvest gain this year?

Posted: Fri Nov 15, 2019 3:09 pm
by mhalley
The maximum income for the zero cap gains rate for 2019 is only $78750. Taking into account the standard deduction, that means you can earn up to $103150. I believe the SS is included in that, as SS is considered ordinary income, so looks like you are already over the limit.
What Is Ordinary Income?
Ordinary income represents most of your household's taxable income from sources such as wages, self-employment income, pensions, Social Security benefits, rents, royalties, and interest. Other forms of household income – such as capital gains, qualified dividends and capital gains from collectibles – are not considered to be ordinary income; instead, they are taxed at different rates.

How Is Ordinary Income Taxed?
All sources of ordinary income are added together, and then all allowable deductions and personal exemptions are subtracted from this total. What remains is subject to tax using tax brackets and the IRS tax tables.

https://www.investopedia.com/ask/answer ... curity.asp
https://www.thebalance.com/how-to-use-t ... ns-2388995

Use TaxCaster to play with the numbers.
https://turbotax.intuit.com/tax-tools/c ... taxcaster/
AARP has an article on tax gain harvesting here:
https://www.aarp.org/money/investing/in ... -HDR-LOGIN

Re: Should I tax harvest gain this year?

Posted: Fri Nov 15, 2019 3:36 pm
by jeff1949
Looks like Social Security income will put me over the limit IF indeed it is used in the calculation. Would love to hear from someone who has been through this and knows for sure about the SS part of this issue. Maybe the Tax Caster will confirm one way or the other so I will give it a try.

Re: Should I tax harvest gain this year?

Posted: Fri Nov 15, 2019 3:37 pm
by Makefile
Have you looked at state income tax - looks like you are in OR. It is unusual for state income tax to give a lower rate for capital gains.

Re: Should I tax harvest gain this year?

Posted: Fri Nov 15, 2019 3:41 pm
by mhalley
I added a quote and link confirming that SS is considered ordinary income. When I put your numbers into taxcaster and get the taxes owed, when I add any lt cap gains the taxes increase by 15% of the amount of lt gains, confirming the tax rate is not zero.

Re: Should I tax harvest gain this year?

Posted: Fri Nov 15, 2019 3:49 pm
by Stinky
jeff1949 wrote:
Fri Nov 15, 2019 3:36 pm
Looks like Social Security income will put me over the limit IF indeed it is used in the calculation. Would love to hear from someone who has been through this and knows for sure about the SS part of this issue. Maybe the Tax Caster will confirm one way or the other so I will give it a try.
If the market stays up and you don’t plan to do conversions to Roth IRA next year, you could harvest your tax gain in early 2020.

Re: Should I tax harvest gain this year?

Posted: Fri Nov 15, 2019 3:59 pm
by jeff1949
mhalley wrote:
Fri Nov 15, 2019 3:41 pm
I added a quote and link confirming that SS is considered ordinary income. When I put your numbers into taxcaster and get the taxes owed, when I add any lt cap gains the taxes increase by 15% of the amount of lt gains, confirming the tax rate is not zero.
Yes, you are correct. I used the TaxCaster and SS does indeed count. Thanks again!

Re: Should I tax harvest gain this year?

Posted: Fri Nov 15, 2019 4:00 pm
by jeff1949
Stinky wrote:
Fri Nov 15, 2019 3:49 pm
jeff1949 wrote:
Fri Nov 15, 2019 3:36 pm
Looks like Social Security income will put me over the limit IF indeed it is used in the calculation. Would love to hear from someone who has been through this and knows for sure about the SS part of this issue. Maybe the Tax Caster will confirm one way or the other so I will give it a try.
If the market stays up and you don’t plan to do conversions to Roth IRA next year, you could harvest your tax gain in early 2020.
Yep, looks like I will wait until January to harvest that tax gain and eschew the IRA Conversion.

Re: Should I tax harvest gain this year?

Posted: Fri Nov 15, 2019 4:02 pm
by jeff1949
Makefile wrote:
Fri Nov 15, 2019 3:37 pm
Have you looked at state income tax - looks like you are in OR. It is unusual for state income tax to give a lower rate for capital gains.
Oregon state tax will be 9% for me so that is an issue.

Re: Should I tax harvest gain this year?

Posted: Fri Nov 15, 2019 11:25 pm
by grabiner
jeff1949 wrote:
Fri Nov 15, 2019 3:36 pm
Looks like Social Security income will put me over the limit IF indeed it is used in the calculation. Would love to hear from someone who has been through this and knows for sure about the SS part of this issue. Maybe the Tax Caster will confirm one way or the other so I will give it a try.
You have to see how the phase-in works for you.

If you are in the upper phase-in range, every $1 of capital gains taxed at 0% makes 85 cents of SS taxable at 12%, for a 10.2% marginal tax rate. In addition, part of your SS is already included in taxable income.

If you are above the phase-in range, 85% of your SS is taxable income, which limits the amount you can take tax-free in capital gains.