Author Topic: Capital Gains Questions  (Read 382 times)

SecondEngineer

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Capital Gains Questions
« on: June 05, 2019, 09:58:36 AM »
Hi everyone, I understand how capital gains taxes work in the simplest of examples, but I have questions about how it will apply to my individual case.

Say I invest $1000 per month in a taxable account holding VTSAX for 10 years. At the end of these 10 years I have invested a total of $120,000. The value of VTSAX has fluctuated and I have bought shares at different values over the years. Say the account is now valued at $180,000. If I were to sell shares(using shares to refer to mutual fund shares), how do I determine which shares I am selling? If I sold shares I bought when I first started investing the difference between those share prices and the current price would be pretty large and incur a large capital gain tax, right? While selling later shares would result in smaller capital gains tax.

Also, if I'm selling below a certain amount would that mean I don't have to worry about capital gains taxes at all? If I make no income and sell $20,000 worth of VTSAX, won't that likely be in the 0% capital gains tax bracket? Would this still be the case if my income were, say $20,000? What about if my income were $37,000? (From what I've read the 0% capital gains bracket right now is $0-$38,600).

From what I've read on the forums it seems like avoiding capital gains taxes is a big talking point. Is it only a big deal for those who are spending a good amount per year? It seems like it shouldn't be a problem for anyone who can cut their spending below $40,000 or so.

Thanks!

(I just realized this topic might be better in the taxes section?)
« Last Edit: June 05, 2019, 10:01:34 AM by SecondEngineer »

Aggie1999

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Re: Capital Gains Questions
« Reply #1 on: June 05, 2019, 10:11:29 AM »
Vanguard and other brokerages default to average cost basis. You can change the account to specific lot cost basis (named different things depending on the brokerage). Then you can sell specific lots (i.e. the newer ones with less growth). Note that Schwab will not allow you to change the cost basis method on previous purchased lots. Why? I don't know. Vanguard and Fidelity will retroactively apply the cost bases method to previous purchases like any good brokerage should.

SecondEngineer

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Re: Capital Gains Questions
« Reply #2 on: June 05, 2019, 10:45:16 AM »
Vanguard and other brokerages default to average cost basis. You can change the account to specific lot cost basis (named different things depending on the brokerage). Then you can sell specific lots (i.e. the newer ones with less growth). Note that Schwab will not allow you to change the cost basis method on previous purchased lots. Why? I don't know. Vanguard and Fidelity will retroactively apply the cost bases method to previous purchases like any good brokerage should.
Thanks, that was very helpful! I was able to find my cost basis info on Vanguard and I feel like I better know what is going on now.

Dabnasty

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Re: Capital Gains Questions
« Reply #3 on: June 05, 2019, 01:10:09 PM »
Don't forget state taxes on capital gains. Not all states tax CG, but most do and the states I'm familiar with tax it as regular income.

seattlecyclone

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Re: Capital Gains Questions
« Reply #4 on: June 05, 2019, 04:17:27 PM »
Don't forget state taxes on capital gains. Not all states tax CG, but most do and the states I'm familiar with tax it as regular income.

Also ACA subsidies if you're planning on buying your health insurance through the exchange. Even though capital gains income has a 0% tax rate it still counts toward your MAGI that is used to determine your subsidy. Depending on your income level this could amount to as much as a 9.5% tax on this supposedly untaxed income.