Long Term Capital Gains - 0%

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SUP3RMAN 131
Posts: 16
Joined: Mon Mar 30, 2015 8:06 pm

Long Term Capital Gains - 0%

Post by SUP3RMAN 131 » Thu Oct 05, 2017 10:02 am

I'd like to run the following scenario to see if I'm understanding correctly for my position. I had purchased individual stocks when I was 18-23 and have held them ever since (last purchase was 2015). They are setup to have dividends reinvested and there have been some spinoffs where I've acquired stock of a new company. The stocks are as followed:

Altria Group (MO) - Unrealized Gain $591.25
Bank of America (BAC) - Unrealized Gain $1,554.36
*DXC Technology (DXC) - Unrealized Gain $116.22
*Hewlett Packard Enterprise (HPE) - Unrealized Gain $121.10
HP Inc (HPQ) - Unrealized Gain $58.21
*Micro Focus International (MFGP) - Unrealized Gain $20.48

*These were stocks I received from owning HPQ and they happened at various times. Would that affect the classification between LTG and STG?

Total Unrealized Gain - $2,461.62

My understanding of paying 0% LTG is that you need to be in the 15% Federal tax bracket. I'm projecting my income to be the following at the end of 2017:

W-2 Income: $54,250.00
Interest Income (Various CDs and savings accounts): $1,000.00
Total Income: $55,250.00

Traditional 401(k) Contributions: $11,000

AGI: $44,250

Standard Deduction: $6,350
Personal Exemption: $4,050

Taxable Income: $33,850

This would work, correct? Sell all the above stocks would save $370 in taxes.

Other Questions:
1. Can repurchase same investments after 30 days?
2. How would the dividends be handled that were reinvested within 12 months?

Edited: To fix tax terms.
Last edited by SUP3RMAN 131 on Thu Oct 05, 2017 2:18 pm, edited 1 time in total.

aristotelian
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Joined: Wed Jan 11, 2017 8:05 pm

Re: Long Term Capital Gains - 0%

Post by aristotelian » Thu Oct 05, 2017 10:07 am

Looks good to me. The wash rule applies only to losses, not gains, so you could rebuy the stocks immediately if you like.

mega317
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Joined: Tue Apr 19, 2016 10:55 am

Re: Long Term Capital Gains - 0%

Post by mega317 » Thu Oct 05, 2017 12:45 pm

If shares bought with reinvested dividends within the last year have gains, those gains would be taxed at 15%

earlyout
Posts: 1306
Joined: Tue Feb 20, 2007 5:24 pm

Re: Long Term Capital Gains - 0%

Post by earlyout » Thu Oct 05, 2017 1:11 pm

You are essentially correct but lets try to avoid confusion with income tax terms. In this example, your AGI is W2 income + net capital gain (long term and short term) + interest less the adjustment for the amount contributed to your 401K ($52,000 + 2462 + 1000 -11,000 = $44,462). Your Taxable Income is your AGI less deductions and exemption ($44,462 - 10,400 = $34,062). Your Taxable Income is well below the top of the 15% bracket for a single taxpayer in 2017 ($37,950) so none of the the long term gain will be taxed.

Edited to remove erroneous statement re tax rates.
Last edited by earlyout on Thu Oct 05, 2017 2:31 pm, edited 1 time in total.

SUP3RMAN 131
Posts: 16
Joined: Mon Mar 30, 2015 8:06 pm

Re: Long Term Capital Gains - 0%

Post by SUP3RMAN 131 » Thu Oct 05, 2017 2:17 pm

earlyout wrote:
Thu Oct 05, 2017 1:11 pm
You are essentially correct but lets try to avoid confusion with income tax terms.
My mistake. I'll edit my original post so to remove any confusion. Thank you.
earlyout wrote:
Thu Oct 05, 2017 1:11 pm
Since long term gain is taxed at 10% the maximum tax savings (if all of the gain is long term) will be $246, not $370.
Can you explain this further? The few sites that I looked at showed the LTG tax rate jump to 15% once you go into the 25% tax bracket. I guess regardless it's a good idea especially since I can repurchase immediately with no wash sale. Thinking this is more advantageous than getting lower to $31,000 to grab the saver's credit since I can't do both.

earlyout
Posts: 1306
Joined: Tue Feb 20, 2007 5:24 pm

Re: Long Term Capital Gains - 0%

Post by earlyout » Thu Oct 05, 2017 2:30 pm

My apologies, you are correct. LTCG rate is 15%.

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FiveK
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Re: Long Term Capital Gains - 0%

Post by FiveK » Thu Oct 05, 2017 2:31 pm

SUP3RMAN 131 wrote:
Thu Oct 05, 2017 2:17 pm
The few sites that I looked at showed the LTG tax rate jump to 15% once you go into the 25% tax bracket.
That is correct.
I guess regardless it's a good idea especially since I can repurchase immediately with no wash sale. Thinking this is more advantageous than getting lower to $31,000 to grab the saver's credit since I can't do both.
Another idea to consider: take the capital gains at 0% but instead of putting the money back into a taxable account, use the cash to increase either traditional or Roth tax-advantaged contributions.

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