Long term gains tax 0% question

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Topic Author
staxchips
Posts: 13
Joined: Mon Mar 23, 2020 8:02 pm

Long term gains tax 0% question

Post by staxchips » Wed Mar 25, 2020 8:49 pm

So lets say you buy $40k worth of SPY every month like a monthly contribution. For 30 years.

And for 30 years your income is $500k to $800k per year.

30 years later your investment account appreciates to $100 million and it’s time to retire.

Can you quit your current job that was paying you $500-$800k per year and work at mcdonalds for a whole year and make $28k and qualify for 0% long term gains tax before you realize your gains?

This might be a stupid question im sorry lol

SteadyOne
Posts: 64
Joined: Fri Mar 22, 2019 5:26 pm

Re: Long term gains tax 0% question

Post by SteadyOne » Wed Mar 25, 2020 8:54 pm

staxchips wrote:
Wed Mar 25, 2020 8:49 pm
So lets say you buy $40k worth of SPY every month like a monthly contribution. For 30 years.

And for 30 years your income is $500k to $800k per year.

30 years later your investment account appreciates to $100 million and it’s time to retire.

Can you quit your current job that was paying you $500-$800k per year and work at mcdonalds for a whole year and make $28k and qualify for 0% long term gains tax before you realize your gains?

This might be a stupid question im sorry lol
Your $100 million SPY account pays dividends, so your income will be $2 million and I do not think your tax rate will allow you to deduct anything.
“Every de­duc­tion is al­lowed as a mat­ter of leg­isla­tive grace.” US Federal Court

Topic Author
staxchips
Posts: 13
Joined: Mon Mar 23, 2020 8:02 pm

Re: Long term gains tax 0% question

Post by staxchips » Wed Mar 25, 2020 9:02 pm

Ohhh i didn’t think about the dividends.

Actually I didnt even know SPY etf paid dividends.

So the SPY pays 2% a year for dividends?

What if the dividends net me less than $40k per year?

Would I qualify in that 0% long term capital gains tax?

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MP123
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Joined: Thu Feb 16, 2017 3:32 pm

Re: Long term gains tax 0% question

Post by MP123 » Wed Mar 25, 2020 9:04 pm

It's hard to say about 30 years in the future.

But for now you could make $24k (assuming married) and have $78,750 in capital gains this year and still owe $0 taxes. Or you could give up the McDonald's job and still be in the zero CG bracket on the $78,750.

$78,750 in capital gains likely represents quite a bit of money each year but you still couldn't spend the whole $100 million in the zero bracket in your lifetime.

There's a good section in the Wiki here describing how this all works.

Topic Author
staxchips
Posts: 13
Joined: Mon Mar 23, 2020 8:02 pm

Re: Long term gains tax 0% question

Post by staxchips » Wed Mar 25, 2020 9:16 pm

Ohhhh i think i get it now!

So if I tried to sell and realize my $100 million dollar gain.

My income would be considered as $100million, regardless if im working at Mcdonalds making $28k per year or unemployed making $0.

Therefore I would pay 20% capital gains tax for making over $434k correct?

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MP123
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Re: Long term gains tax 0% question

Post by MP123 » Wed Mar 25, 2020 9:24 pm

staxchips wrote:
Wed Mar 25, 2020 9:16 pm
Ohhhh i think i get it now!

So if I tried to sell and realize my $100 million dollar gain.

My income would be considered as $100million, regardless if im working at Mcdonalds making $28k per year or unemployed making $0.

Therefore I would pay 20% capital gains tax for making over $434k correct?
Right. The long term capital gains income stacks on top of your regular and short term capital gains income.

So your only hope would be to sell it off slowly and keep the gains in the 0% bracket.

Or pay the $20 million :happy

FoolMeOnce
Posts: 829
Joined: Mon Apr 24, 2017 11:16 am

Re: Long term gains tax 0% question

Post by FoolMeOnce » Wed Mar 25, 2020 9:31 pm

staxchips wrote:
Wed Mar 25, 2020 9:16 pm
Ohhhh i think i get it now!

So if I tried to sell and realize my $100 million dollar gain.

My income would be considered as $100million, regardless if im working at Mcdonalds making $28k per year or unemployed making $0.

Therefore I would pay 20% capital gains tax for making over $434k correct?
If you have zero other income, you would pay 0% on the amount of long term capital gains up to the top of the 0% LTCG bracket ($78,750?). Then 15% up to the next bracket, then 20% on the remainder. Plus the 3.8% Net Investment Income Tax kicks in at I think $250k for joint filers.

If you have some earned income after deductions, that pushes your LTCG dollars up, so it takes up your 0% space first.

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