Tax gain harvest on UTMA

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Topic Author
Brianjp18
Posts: 223
Joined: Tue May 25, 2021 3:52 pm

Tax gain harvest on UTMA

Post by Brianjp18 »

Per wiki:
The first $1,250 of unearned income is untaxed
The next $1,250 is taxed at the child's rate
0% for qualified dividend (QDI) and long term capital gain (LTCG)
10% for Interest and non-QDI
Anything beyond that is taxed at the parents' tax rate.

If our child had $10,000 in LTCG that could be harvested, I understand the first $2,500 would be tax free per the above definition.

If I’m married filing jointly and the LTCG 0% bracket is below 84k and we make around 74k (so 10k of space for 0% LTCG), can we tax gain harvest all of the 10k LTCG in our child’s UTMA account with no taxes? What form would need to be filled out if this can be done?
rkhusky
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Joined: Thu Aug 18, 2011 8:09 pm

Re: Tax gain harvest on UTMA

Post by rkhusky »

Brianjp18 wrote: Mon Nov 21, 2022 11:16 pm If I’m married filing jointly and the LTCG 0% bracket is below 84k and we make around 74k (so 10k of space for 0% LTCG), can we tax gain harvest all of the 10k LTCG in our child’s UTMA account with no taxes?
Note that the $83,350 for 0% LTCG is taxable income, after the standard or itemized deduction has been subtracted from AGI. With the standard deduction of $25,900, you can make $109,250 total and pay 0% LTCG.

Looking at Form 8814, it appears that your child can only have interest, dividends and cap gain distributions for you to report his income on your return. Otherwise, the child should file his own return.

Form 8615, Tax for Certain Children Who Have Unearned Income, looks applicable to your situation.
RetiredAL
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Location: SF Bay Area

Re: Tax gain harvest on UTMA

Post by RetiredAL »

This might not help the OP at this point, but I yearly gain harvest up to the zero cost limits the grand kids UTMAs to minimize (and hopefully stop) any bulk cap gains happening years down the road.

Even with this year's market decline, one grand kid has gains left over from previous years that I will harvest next month.
Topic Author
Brianjp18
Posts: 223
Joined: Tue May 25, 2021 3:52 pm

Re: Tax gain harvest on UTMA

Post by Brianjp18 »

RetiredAL wrote: Tue Nov 22, 2022 1:12 pm This might not help the OP at this point, but I yearly gain harvest up to the zero cost limits the grand kids UTMAs to minimize (and hopefully stop) any bulk cap gains happening years down the road.

Even with this year's market decline, one grand kid has gains left over from previous years that I will harvest next month.
So does that mean you harvest up to $2,300?
Topic Author
Brianjp18
Posts: 223
Joined: Tue May 25, 2021 3:52 pm

Re: Tax gain harvest on UTMA

Post by Brianjp18 »

rkhusky wrote: Tue Nov 22, 2022 8:13 am Note that the $83,350 for 0% LTCG is taxable income, after the standard or itemized deduction has been subtracted from AGI. With the standard deduction of $25,900, you can make $109,250 total and pay 0% LTCG.

Looking at Form 8814, it appears that your child can only have interest, dividends and cap gain distributions for you to report his income on your return. Otherwise, the child should file his own return.

Form 8615, Tax for Certain Children Who Have Unearned Income, looks applicable to your situation.
So if reporting LTCG from a UTMA are you saying I will most likely have to report using Form 8615?
Also, if LTCG go above $2,300 in the UTMA, how will it be taxed? Will it still be taxed at the LTCG rate?
RetiredAL
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Location: SF Bay Area

Re: Tax gain harvest on UTMA

Post by RetiredAL »

Brianjp18 wrote: Tue Nov 22, 2022 9:11 pm
RetiredAL wrote: Tue Nov 22, 2022 1:12 pm This might not help the OP at this point, but I yearly gain harvest up to the zero cost limits the grand kids UTMAs to minimize (and hopefully stop) any bulk cap gains happening years down the road.

Even with this year's market decline, one grand kid has gains left over from previous years that I will harvest next month.
So does that mean you harvest up to $2,300?
Yes -- I believe that is the number for 2022.

I have to do a 1040 return for each grand kid, but the tax due is zero. I do this after the Dec dividends are posted since the sale amount + that years dividends need to be under the limit. Being under the limit avoids needing F8615 to compute the tax due based on parents rate. I do their tax forms using HR Block. Being over is not fatal, it just means you have to do a F8615 and taxes will be due. I always make sure to not exceed the limit.

One cannot hit the limit amount exactly. For example, Last year one grand kid's dividends were 226 and a LTCG Sale of 1849, for a total of $2075, against last years $2200 limit. That is as close as I feel comfortable with. Selling one more share would have made it $2190, tooooo close for me

They live in a state where their income is below the threshold for needing to file a state return.
rkhusky
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Re: Tax gain harvest on UTMA

Post by rkhusky »

Brianjp18 wrote: Tue Nov 22, 2022 9:20 pm
rkhusky wrote: Tue Nov 22, 2022 8:13 am Note that the $83,350 for 0% LTCG is taxable income, after the standard or itemized deduction has been subtracted from AGI. With the standard deduction of $25,900, you can make $109,250 total and pay 0% LTCG.

Looking at Form 8814, it appears that your child can only have interest, dividends and cap gain distributions for you to report his income on your return. Otherwise, the child should file his own return.

Form 8615, Tax for Certain Children Who Have Unearned Income, looks applicable to your situation.
So if reporting LTCG from a UTMA are you saying I will most likely have to report using Form 8615?
Also, if LTCG go above $2,300 in the UTMA, how will it be taxed? Will it still be taxed at the LTCG rate?
If the child's unearned income is more than $2,300, use Form 8615 to figure the child's tax. It appears that the form adds the child's unearned income to the parent's income and computes the additional tax. It also computes the tax based just on the child's income and then takes the larger of the two to add to the child's return.
Topic Author
Brianjp18
Posts: 223
Joined: Tue May 25, 2021 3:52 pm

Re: Tax gain harvest on UTMA

Post by Brianjp18 »

RetiredAL wrote: Tue Nov 22, 2022 9:52 pm Yes -- I believe that is the number for 2022.

I have to do a 1040 return for each grand kid, but the tax due is zero. I do this after the Dec dividends are posted since the sale amount + that years dividends need to be under the limit. Being under the limit avoids needing F8615 to compute the tax due based on parents rate. I do their tax forms using HR Block. Being over is not fatal, it just means you have to do a F8615 and taxes will be due. I always make sure to not exceed the limit.

One cannot hit the limit amount exactly. For example, Last year one grand kid's dividends were 226 and a LTCG Sale of 1849, for a total of $2075, against last years $2200 limit. That is as close as I feel comfortable with. Selling one more share would have made it $2190, tooooo close for me

They live in a state where their income is below the threshold for needing to file a state return.
Gotcha. So if you keep unearned income harvest below $2,300 you still do a 1040 for the kids, but that is all you need to fill out?
Topic Author
Brianjp18
Posts: 223
Joined: Tue May 25, 2021 3:52 pm

Re: Tax gain harvest on UTMA

Post by Brianjp18 »

rkhusky wrote: Wed Nov 23, 2022 8:08 am If the child's unearned income is more than $2,300, use Form 8615 to figure the child's tax. It appears that the form adds the child's unearned income to the parent's income and computes the additional tax. It also computes the tax based just on the child's income and then takes the larger of the two to add to the child's return.
Ok, that makes sense. I use turbo tax so it will be interesting to see how much of this process is autogenerated.
RetiredAL
Posts: 2488
Joined: Tue Jun 06, 2017 12:09 am
Location: SF Bay Area

Re: Tax gain harvest on UTMA

Post by RetiredAL »

Brianjp18 wrote: Wed Nov 23, 2022 12:26 pm
RetiredAL wrote: Tue Nov 22, 2022 9:52 pm Yes -- I believe that is the number for 2022.

I have to do a 1040 return for each grand kid, but the tax due is zero. I do this after the Dec dividends are posted since the sale amount + that years dividends need to be under the limit. Being under the limit avoids needing F8615 to compute the tax due based on parents rate. I do their tax forms using HR Block. Being over is not fatal, it just means you have to do a F8615 and taxes will be due. I always make sure to not exceed the limit.

One cannot hit the limit amount exactly. For example, Last year one grand kid's dividends were 226 and a LTCG Sale of 1849, for a total of $2075, against last years $2200 limit. That is as close as I feel comfortable with. Selling one more share would have made it $2190, tooooo close for me

They live in a state where their income is below the threshold for needing to file a state return.
Gotcha. So if you keep unearned income harvest below $2,300 you still do a 1040 for the kids, but that is all you need to fill out?
In a nutshell -- No need to file if under $1150, between $1150 and $2300 file but tax will be zero. That $2300 is for "un-earned" income. Brokerage or Savings interest/dividends/LTCG are considered un-earned.

Do note that the kiddie tax rules (parents rate) apply to age 24 when the child in a student. This catches a lot of college entering students and their parents by surprise when stocks are sold to pay school costs.

Earned income (if any) is always taxed at the child's rate.
Topic Author
Brianjp18
Posts: 223
Joined: Tue May 25, 2021 3:52 pm

Re: Tax gain harvest on UTMA

Post by Brianjp18 »

RetiredAL wrote: Wed Nov 23, 2022 1:09 pm
In a nutshell -- No need to file if under $1150, between $1150 and $2300 file but tax will be zero. That $2300 is for "un-earned" income. Brokerage or Savings interest/dividends/LTCG are considered un-earned.

Do note that the kiddie tax rules (parents rate) apply to age 24 when the child in a student. This catches a lot of college entering students and their parents by surprise when stocks are sold to pay school costs.

Earned income (if any) is always taxed at the child's rate.
Awesome, thanks.

Yea, that’s why I’m trying to be vigilant about TGH every year if possible to reduce tax burden in the future. I have space in the 0% LTCG bracket so I’m trying to stay on top of it while my income is a bit lower than what it will be in the future.
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