Taking Capital Gains in a Low Income Year

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Fat-Tailed Contagion
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Taking Capital Gains in a Low Income Year

Post by Fat-Tailed Contagion » Tue Oct 01, 2019 11:57 am

Scenario: Make 5-10k income for year.

Next year expect to make significantly more income.

Have 2 funds with 8k long term capital gains and 5k short term capital gains.

Should I sell 2 funds and consolidate to Prime Money Market Fund? (These are LT TaxExempt Bond Funds I would like to consolidate for simplicity).

Thank you for feedback and ideas.

- Fatty
Last edited by Fat-Tailed Contagion on Tue Oct 08, 2019 9:14 pm, edited 1 time in total.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor

HomeStretch
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Re: Taking Capital Gains in a Low Income Year

Post by HomeStretch » Tue Oct 01, 2019 12:08 pm

A good goal is to level your Adjusted Gross Income, Taxable Income and Marginal Tax Rate(s) each year throughout retirement. So, in a low income year, it makes sense to recognize some additional income, such as capital gains harvesting as you propose, or doing withdrawals from or conversions of your traditional IRA (per your prior thread) to a Roth IRA, or some combination thereof. Also depends on whether you need the cash from the additional income to pay for living expenses. Not enough info to say which is the best option for you.

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willthrill81
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Re: Taking Capital Gains in a Low Income Year

Post by willthrill81 » Tue Oct 01, 2019 12:10 pm

The concept is called tax gain harvesting, and it's very seldom discussed, but it may be very useful in situations such as yours. The Wiki reviews the specifics of what's involved.
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bradpevans
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Re: Taking Capital Gains in a Low Income Year

Post by bradpevans » Tue Oct 01, 2019 12:17 pm

Fat-Tailed Contagion wrote:
Tue Oct 01, 2019 11:57 am
Scenario: Make 5-10k income for year.

Next year expect to make significantly more income.

Have 2 funds with 7k long term capital gains and 4k short term capital gains.

Should I sell 2 funds and consolidate to Prime Money Market Fund? (These are LT TaxExempt Bond Funds I would like to consolidate for simplicity).

Thank you for feedback and ideas.

- Fatty
You can simply sell and re-buy; there are no "wash sale" issues with a gain

Sell: triggers the taxes, which might in fact be zero this year
Re-buy: establish the *new* basis

If you wish to sell and buy some other security you can (but that is not required for tax GAIN harvesting)

Living Free
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Re: Taking Capital Gains in a Low Income Year

Post by Living Free » Tue Oct 01, 2019 12:22 pm

Filing single or jointly for taxes? if single then you might have to pay taxes if you earn the $10k plus $4k short term capital gains given standard deduction is only $12k for single. If married filing jointly then I agree I'd definitely tax gain harvest.

michaeljc70
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Re: Taking Capital Gains in a Low Income Year

Post by michaeljc70 » Tue Oct 01, 2019 12:47 pm

Be sure to take into account state taxes (if your state has them). I did some harvesting of gains this year (at 0% Federal bracket) but I still have to pay state taxes at the full rate (my state doesn't give any break for capital gains). It can also affect the ACA subsidy.

northtexan
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Re: Taking Capital Gains in a Low Income Year

Post by northtexan » Tue Oct 01, 2019 2:34 pm

This would be very beneficial as long as you don't go into the next tax bracket and have to pay tax on long term gains. I am harvesting some since it is the last year of school for me before I will be earning substantially more. Tax gain harvesting is one of the most beneficial things one can do if they are able. It allows you to increase your cost basis and then be in a better position to tax loss harvest in the future if there is a drop in the market. If you can wait until the end of the year it could potentially be more beneficial if the market goes up from now, but there is also the risk of it going down.

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Fat-Tailed Contagion
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Re: Taking Capital Gains in a Low Income Year

Post by Fat-Tailed Contagion » Tue Oct 01, 2019 9:23 pm

Thanks all for feedback.

Filing Single, made some income in high tax state for less than half the year, over half year in FL.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor

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FiveK
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Re: Taking Capital Gains in a Low Income Year

Post by FiveK » Tue Oct 01, 2019 9:31 pm

Any traditional funds you could convert to Roth?

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MP123
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Re: Taking Capital Gains in a Low Income Year

Post by MP123 » Tue Oct 01, 2019 9:56 pm

With a $12k standard deduction and $39,375 of long term capital gains at 0% on top of that this is likely a good time to harvest those gains. And any other gains you may have up to the top of the 0% bracket.

As mentioned above there could be issues with ACA subsidies and/or state taxes depending on your situation but this is likely a good opportunity.

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Fat-Tailed Contagion
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Re: Taking Capital Gains in a Low Income Year

Post by Fat-Tailed Contagion » Tue Oct 01, 2019 10:06 pm

FiveK wrote:
Tue Oct 01, 2019 9:31 pm
Any traditional funds you could convert to Roth?
No, I have 2 Roth IRAs and a taxable account.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor

lynneny
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Re: Taking Capital Gains in a Low Income Year

Post by lynneny » Wed Oct 02, 2019 12:18 am

I'm doing this, too. This is my first no-income year after retiring. I have a couple years before starting a small pension and then Social Security. And I have a lot of long-term capital gains in my taxable account. So this year I sold highly-appreciated stock up to the top of the tax bracket (almost $40,000 for a single person) for 0% capital gains.

I'll do similar tax gain harvesting next year, then after that my income will be too high again.

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Fat-Tailed Contagion
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Re: Taking Capital Gains in a Low Income Year

Post by Fat-Tailed Contagion » Tue Oct 08, 2019 9:09 pm

MP123 wrote:
Tue Oct 01, 2019 9:56 pm
With a $12k standard deduction and $39,375 of long term capital gains at 0% on top of that this is likely a good time to harvest those gains. And any other gains you may have up to the top of the 0% bracket.

As mentioned above there could be issues with ACA subsidies and/or state taxes depending on your situation but this is likely a good opportunity.
How would CA state income tax come into play?

Looks like I will have $7k income and $14k cap gains.
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor

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FiveK
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Re: Taking Capital Gains in a Low Income Year

Post by FiveK » Tue Oct 08, 2019 9:15 pm

Fat-Tailed Contagion wrote:
Tue Oct 08, 2019 9:09 pm
MP123 wrote:
Tue Oct 01, 2019 9:56 pm
With a $12k standard deduction and $39,375 of long term capital gains at 0% on top of that this is likely a good time to harvest those gains. And any other gains you may have up to the top of the 0% bracket.

As mentioned above there could be issues with ACA subsidies and/or state taxes depending on your situation but this is likely a good opportunity.
How would CA state income tax come into play?

Looks like I will have $7k income and $14k cap gains.
One or more of the tools in US and state income tax calculator - Bogleheads.org would probably be helpful to you.

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Fat-Tailed Contagion
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Re: Taking Capital Gains in a Low Income Year

Post by Fat-Tailed Contagion » Wed Oct 23, 2019 9:13 pm

More Details:

Looks like income will be around 5,000 for 2019.

Capital Gains will be:

$7,000 Long Term

$4,500 Short Term

State: CA

Any additional advice?
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor

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FiveK
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Re: Taking Capital Gains in a Low Income Year

Post by FiveK » Wed Oct 23, 2019 10:14 pm

Fat-Tailed Contagion wrote:
Wed Oct 23, 2019 9:13 pm
Looks like income will be around 5,000 for 2019.
Capital Gains will be:
$7,000 Long Term
$4,500 Short Term
State: CA
Do it?

Not sure what advice you desire.

With that income, the personal finance toolbox spreadsheet suggests you will owe
- $0 federal tax
- $39 state tax
You could download a copy and adjust as needed:
Image

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Fat-Tailed Contagion
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Re: Taking Capital Gains in a Low Income Year

Post by Fat-Tailed Contagion » Thu Oct 24, 2019 9:11 am

Thank you, that is helpul!
“The intelligent investor is a realist who sells to optimists and buys from pessimists.” | ― Benjamin Graham, The Intelligent Investor

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