Pay capital gains taxes now or defer till 219?

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mrspock
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Pay capital gains taxes now or defer till 219?

Post by mrspock » Sat Nov 10, 2018 4:02 pm

So a bit on context, I’ve been unwinding a heavy position in a tech stock this year (with 6 figure cap gains), and I’ve got it down to less than 15% of my AA per the collective wisdom of folks on here. This was great advice, and I’m back for more :D .

I’ve still got low six figures invested in this thing with around $20k in capital gains taxes due if I sell. I’m wondering if I should delay the sale till the new year to give me runway to find TLH opportunities for the entire 2019 year (which worked great this year), or just take the hit and eat the tax.

Ordinarily I’d wait till the new year, but with the tech stocks getting hit so hard lately, I’m having second thoughts.

I’m wondering if there’s a cheap hedging strategy like buying “collared position” (https://www.investopedia.com/terms/c/collar.asp) to nudge this into 2019 with minimal downside risk. Or just keep it simple and wait or sell now.

Curious what the opinions are around this situation.

Thanks in Advance!

PFInterest
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Re: Pay capital gains taxes now or defer till 219?

Post by PFInterest » Sat Nov 10, 2018 4:13 pm

Getting hit hard is good. I would wait to sell unless your income is going up significantly.

Soon2BXProgrammer
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Re: Pay capital gains taxes now or defer till 219?

Post by Soon2BXProgrammer » Sat Nov 10, 2018 5:19 pm

PFInterest wrote:
Sat Nov 10, 2018 4:13 pm
Getting hit hard is good. I would wait to sell unless your income is going up significantly.
how about you sell something today, if you think it is going to go down.. and you give me the difference between todays price and what you think it will be next year, and i'll pay the taxes for you on that difference.

my point is, don't let the tail wag the dog, if the gains aren't stable, and your concerned about them, i'd rather pay uncle sam then lose the gain.

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MP123
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Re: Pay capital gains taxes now or defer till 219?

Post by MP123 » Sat Nov 10, 2018 8:53 pm

I'm not sure of the overall picture but would this additional sale put you into the 20% ltcg bracket for 2018? And/or put you in a range subject to the additional 3.8% NIIT tax on the sale?

Perhaps you're already there but it's something to consider. You might owe less tax if spread over two years.

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grabiner
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Re: Pay capital gains taxes now or defer till 219?

Post by grabiner » Sun Nov 11, 2018 6:12 pm

The advantage of selling the stock this year is that, if you have any capital losses in 2019, you will be able to offset ordinary income with them; this will result in a lower tax bill. If you wait to sell until 2019, your capital losses will offset capital gains taxed at 15%, rather than ordinary income (some it it years in the futures) which will probably be taxed at 24% or 32%.

But with 6-figure capital gains, you might want to split your sales if that gives a tax benefit. If a huge capital gain this year costs you part of the child tax credit, or hits you with the 3.8% NIIT tax, you might pay tax at a lower rate in 2019 if you split over two years.
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mrspock
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Re: Pay capital gains taxes now or defer till 219?

Post by mrspock » Sun Nov 11, 2018 10:33 pm

grabiner wrote:
Sun Nov 11, 2018 6:12 pm
The advantage of selling the stock this year is that, if you have any capital losses in 2019, you will be able to offset ordinary income with them; this will result in a lower tax bill. If you wait to sell until 2019, your capital losses will offset capital gains taxed at 15%, rather than ordinary income (some it it years in the futures) which will probably be taxed at 24% or 32%.

But with 6-figure capital gains, you might want to split your sales if that gives a tax benefit. If a huge capital gain this year costs you part of the child tax credit, or hits you with the 3.8% NIIT tax, you might pay tax at a lower rate in 2019 if you split over two years.
Thanks for the replies everyone.

A bit more context, I've already realized over $150k in realized (long term) capital gains this year, and managed to offset them with around $36k in losses (TLH'ing), so realizing more gains isn't going to help me much I think. The NIIT tax is a good point, as I think I'd run close on that (I've been collecting a good chunk of dividends and bond interest this year as well). On balance, I'm leaning towards holding the shares for a few more months, it's a solid company with a good track record of actual profits, solid management team etc, so I don't think it's going to turn into Pets.com or Enron in the next 2-3 months. Also my ave. marginal tax rate is >40% if that helps (welcome to California), so even LTCG's hit me at around 30% :shock: .

Wrt to offsetting ordinary income, is this not limited to $3k of ordinary income?

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grabiner
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Re: Pay capital gains taxes now or defer till 219?

Post by grabiner » Sun Nov 11, 2018 11:47 pm

mrspock wrote:
Sun Nov 11, 2018 10:33 pm
Wrt to offsetting ordinary income, is this not limited to $3k of ordinary income?
It is, but the excess can be carried over for years. If you might have $21K in capital gains either this year or next year, and happen to have $21K in capital losses next year, taking the gains this year would cost you 15% or 18.8% federal tax, but you would then save 32% or 35.8% federal tax on $3K per year for seven years. (CA tax would be a wash except for the cost of paying the tax earlier.)
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mrspock
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Re: Pay capital gains taxes now or defer till 219?

Post by mrspock » Wed Nov 14, 2018 2:46 am

Just to close this loop: after some reflection on the feedback, I elected to sell and trade it in for some VOO (no change in AA so no bonds). The tax is a rounding error in the long run.

Now of course... watch this trigger a major stock crash :| . Yes that’s right... you heard it here first.

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