First time selling out of taxable account

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sycotik
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Joined: Thu Mar 04, 2010 4:51 am

First time selling out of taxable account

Post by sycotik » Sun Aug 11, 2019 2:57 pm

I am about to sell $10k of shares for some house repairs. I just want to make sure my thinking is correct. I have the fund under SpecID. I "think" I should be selling the ones with the least amount of gains to minimize the tax. These are all long term and all are in the positive. Anything that I am missing here? I might try to go after a loan, but I wanted to see the difference in rates. Is this the correct thinking?

Thanks in advance.

livesoft
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Re: First time selling out of taxable account

Post by livesoft » Sun Aug 11, 2019 2:59 pm

Sounds like the way I would do it.
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random_walker_77
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Re: First time selling out of taxable account

Post by random_walker_77 » Sun Aug 11, 2019 10:19 pm

yep, sell to yield out the required amount of cash while paying the least taxes possible.

Not that you do, but _if_ you had losses, and no capital gains, you can even offset $3K in ordinary income.

miamivice
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Re: First time selling out of taxable account

Post by miamivice » Sun Aug 11, 2019 10:21 pm

You should sell the shares with the least amount of taxable gain IF and ONLY IF you believe that long term capital gains tax rate will be at 15% or less.

If you believe that future long term capital gain tax rates will be above 15% in the future, then you'd sell the shares with the most taxable gain now to save taxes in the future.

or something like that....

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MP123
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Re: First time selling out of taxable account

Post by MP123 » Sun Aug 11, 2019 10:25 pm

miamivice wrote:
Sun Aug 11, 2019 10:21 pm
You should sell the shares with the least amount of taxable gain IF and ONLY IF you believe that long term capital gains tax rate will be at 15% or less.

If you believe that future long term capital gain tax rates will be above 15% in the future, then you'd sell the shares with the most taxable gain now to save taxes in the future.

or something like that....
Or if you were in the 20% bracket now and maybe in the 0% bracket later.

In other words: it depends.

esteen
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Re: First time selling out of taxable account

Post by esteen » Mon Aug 12, 2019 3:12 am

MP123 wrote:
Sun Aug 11, 2019 10:25 pm
miamivice wrote:
Sun Aug 11, 2019 10:21 pm
You should sell the shares with the least amount of taxable gain IF and ONLY IF you believe that long term capital gains tax rate will be at 15% or less.

If you believe that future long term capital gain tax rates will be above 15% in the future, then you'd sell the shares with the most taxable gain now to save taxes in the future.

or something like that....
Or if you were in the 20% bracket now and maybe in the 0% bracket later.

In other words: it depends.
Or if you weren't going to sell it all before you die, and bequeath some of it to your heirs who would receive a step up in basis and pay no taxes. So it depends for a couple reasons!

DA200
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Re: First time selling out of taxable account

Post by DA200 » Mon Aug 12, 2019 6:12 am

sycotik wrote:
Sun Aug 11, 2019 2:57 pm
I am about to sell $10k of shares for some house repairs. I just want to make sure my thinking is correct. I have the fund under SpecID. I "think" I should be selling the ones with the least amount of gains to minimize the tax. These are all long term and all are in the positive. Anything that I am missing here? I might try to go after a loan, but I wanted to see the difference in rates. Is this the correct thinking?

Thanks in advance.
OR if you are in a 0% capital gains bracket now (AGI below $78,750) you should be selling the shares with the MOST unrealized long term capital gains! Not enough info provided. Many posters assume everyone is in a higher tax bracket on this forum, but it is not always the case.....

dbr
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Re: First time selling out of taxable account

Post by dbr » Mon Aug 12, 2019 9:33 am

Probably the only thing of actual practical consequence to this investor is the possibility of being in a low enough tax bracket that capital gains will be taxed at zero rate.

jmk
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Re: First time selling out of taxable account

Post by jmk » Mon Aug 12, 2019 12:53 pm

DA200 wrote:
Mon Aug 12, 2019 6:12 am
sycotik wrote:
Sun Aug 11, 2019 2:57 pm
I am about to sell $10k of shares for some house repairs. I just want to make sure my thinking is correct. I have the fund under SpecID. I "think" I should be selling the ones with the least amount of gains to minimize the tax. These are all long term and all are in the positive. Anything that I am missing here? I might try to go after a loan, but I wanted to see the difference in rates. Is this the correct thinking?

Thanks in advance.
OR if you are in a 0% capital gains bracket now (AGI below $78,750) you should be selling the shares with the MOST unrealized long term capital gains! Not enough info provided. Many posters assume everyone is in a higher tax bracket on this forum, but it is not always the case.....
That you for this, it's one of my pet peeves. I'm in that position, and actually want to lock in my zero capital gains at moment with new basis, not save on taxes. I know from previous threads there are a lot of us here in similar positions.

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Mlm
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Re: First time selling out of taxable account

Post by Mlm » Mon Aug 12, 2019 1:12 pm

DA200 wrote:
Mon Aug 12, 2019 6:12 am


OR if you are in a 0% capital gains bracket now (AGI below $78,750) you should be selling the shares with the MOST unrealized long term capital gains! Not enough info provided. Many posters assume everyone is in a higher tax bracket on this forum, but it is not always the case.....
Just like many posters assume you are married. Not always the case

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grabiner
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Re: First time selling out of taxable account

Post by grabiner » Mon Aug 12, 2019 6:50 pm

miamivice wrote:
Sun Aug 11, 2019 10:21 pm
You should sell the shares with the least amount of taxable gain IF and ONLY IF you believe that long term capital gains tax rate will be at 15% or less.

If you believe that future long term capital gain tax rates will be above 15% in the future, then you'd sell the shares with the most taxable gain now to save taxes in the future.
Even this isn't correct, because of the value of postponing the tax. Suppose that you can sell for a $10K gain now, taxed at 15%, which would cost you $1500 in tax. If you don't sell now, you will have a 20% tax rate on capital gains (which need not be a change in tax policy; it could be because you move to a state with an income tax), so when you eventually sell those stocks, you will save $2000 in tax in that year by selling them now. Paying $1500 now to avoid paying $2000 later is not a good deal for a long-term investment, as you can invest $1500 at low risk to get more than $2000.

There is also the possibility that you will never sell the shares, leaving them to your heirs or to charity, and avoiding capital-gains tax entirely.

Therefore, it only makes sense to do tax gain harvesting at an extremely low tax rate. It is a good idea at 0%, and might be reasonable at, say, 5% state tax to avoid having to sell later at 20% including the 15% federal tax.
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miamivice
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Re: First time selling out of taxable account

Post by miamivice » Tue Aug 13, 2019 8:14 am

grabiner wrote:
Mon Aug 12, 2019 6:50 pm
miamivice wrote:
Sun Aug 11, 2019 10:21 pm
You should sell the shares with the least amount of taxable gain IF and ONLY IF you believe that long term capital gains tax rate will be at 15% or less.

If you believe that future long term capital gain tax rates will be above 15% in the future, then you'd sell the shares with the most taxable gain now to save taxes in the future.
Even this isn't correct, because of the value of postponing the tax.
Grabiner, I'm well aware of the time value of money. I was simplifying in my post hence is why I added the comment "or something like that", to reference that the math is a little more complicated but I was simplifying.

My post was simply to indicate there is a bit more to the decision making that the OP was considering, and it would be worth him to take another look.

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sperry8
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Re: First time selling out of taxable account

Post by sperry8 » Tue Aug 13, 2019 8:56 am

grabiner wrote:
Mon Aug 12, 2019 6:50 pm
miamivice wrote:
Sun Aug 11, 2019 10:21 pm
You should sell the shares with the least amount of taxable gain IF and ONLY IF you believe that long term capital gains tax rate will be at 15% or less.

If you believe that future long term capital gain tax rates will be above 15% in the future, then you'd sell the shares with the most taxable gain now to save taxes in the future.
Even this isn't correct, because of the value of postponing the tax. Suppose that you can sell for a $10K gain now, taxed at 15%, which would cost you $1500 in tax. If you don't sell now, you will have a 20% tax rate on capital gains (which need not be a change in tax policy; it could be because you move to a state with an income tax), so when you eventually sell those stocks, you will save $2000 in tax in that year by selling them now. Paying $1500 now to avoid paying $2000 later is not a good deal for a long-term investment, as you can invest $1500 at low risk to get more than $2000.

There is also the possibility that you will never sell the shares, leaving them to your heirs or to charity, and avoiding capital-gains tax entirely.

Therefore, it only makes sense to do tax gain harvesting at an extremely low tax rate. It is a good idea at 0%, and might be reasonable at, say, 5% state tax to avoid having to sell later at 20% including the 15% federal tax.
Can you please let me know this low risk, minimum 33.3% investment return you describe (see bold above, emphasis mine)? For example, via current money market rates (low risk) it would take ~15 years to get the returns to offset the tax savings (and that would not be a real return either, which over 15 years could easily be negative real)
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