Author Topic: Capital Gains Tax Changes  (Read 3445 times)

Babybalrog

  • 5 O'Clock Shadow
  • *
  • Posts: 89
  • Location: Raleigh, NC
Capital Gains Tax Changes
« on: December 06, 2017, 03:22:50 PM »
I've been trying to stay on top of the proposed tax bill and make suggestions to my congressman. My last complaint was the death of 457b plans that I currently enjoy. But now I just saw on CNBC that there is a proposal to change long term capital gains taxes to 3 years instead of 1. Has else has seen it? I didn't see it in reading the bill, nor on any other news sites.

https://www.cnbc.com/2017/12/05/blackstones-schwarzman-on-tax-reform-this-is-a-whopper.html?recirc=taboolainternal

Quote
It also proposes that ordinary income tax be applied to investments of fewer than three years, a longer timeline than the one year threshold currently applied, something that is also not a positive for his firm, he said.

This could really shake up some of the easy capital gain harvesting and loss harvesting we use in retirement.
Thoughts?

smallstache

  • Stubble
  • **
  • Posts: 144
Re: Capital Gains Tax Changes
« Reply #1 on: December 07, 2017, 08:30:50 PM »
1 year, 3 years, or 10 years...the holding period for taxable accounts shouldn't make a whole lot of difference to investors.  It only makes a difference to traders.

For a period of time in the 90s, there was such thing as mid-term capital gains rates for holdings of 1-5 years and very low long term rates for holdings of 5 years or more.

maizefolk

  • Walrus Stache
  • *******
  • Posts: 7400
Re: Capital Gains Tax Changes
« Reply #2 on: December 07, 2017, 11:55:53 PM »
I have some good news about the 457 plans.

"It seems that essentially all of the changes to 457(b)s and 403(b)s that were being contemplated have been dropped"

https://www.planadviser.com/tax-bill-passed-senate-backs-off-457b-403b-plan-changes/

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1740
  • Location: West-by-god-Virginia
Re: Capital Gains Tax Changes
« Reply #3 on: December 08, 2017, 04:53:06 AM »
I did a word search for "3 years" in the text of the Senate bill, and this is all I found related to long-term/short-term capital gains.  There is more to this section, but this is the part that appears to explain to whom the 3 year holding period applies.  Any tax gurus out there want to try to explain what this means?

Quote
‘‘SEC. 1061. PARTNERSHIP INTERESTS HELD IN CONNEC12
TION WITH PERFORMANCE OF SERVICES.
13 ‘‘(a) IN GENERAL.—If one or more applicable partner14
ship interests are held by a taxpayer at any time during
15 the taxable year, the excess (if any) of—
16 ‘‘(1) the taxpayer’s net long-term capital gain
17 with respect to such interests for such taxable year,
18 over
19 ‘‘(2) the taxpayer’s net long-term capital gain
20 with respect to such interests for such taxable year
21 computed by applying paragraphs (3) and (4) of sec22
tions 1222 by substituting ‘3 years’ for ‘1 year’,
23 shall be treated as short-term capital gain, notwithstanding
24 section 83 or any election in effect under section 83(b).
‘‘(b) SPECIAL RULE.—To the extent provided by the
26 Secretary, subsection (a) shall not apply to income or gain
185
† HR 1 EAS
1 attributable to any asset not held for portfolio investment
2 on behalf of third party investors.
3 ‘‘(c) APPLICABLE PARTNERSHIP INTEREST.—For pur4
poses of this section—
5 ‘‘(1) IN GENERAL.—Except as provided in this
6 paragraph or paragraph (4), the term ‘applicable
7 partnership interest’ means any interest in a partner8
ship which, directly or indirectly, is transferred to (or
9 is held by) the taxpayer in connection with the per10
formance of substantial services by the taxpayer, or
11 any other related person, in any applicable trade or
12 business. The previous sentence shall not apply to an
13 interest held by a person who is employed by another
14 entity that is conducting a trade or business (other
15 than an applicable trade or business) and only pro16
vides services to such other entity.

chasesfish

  • Magnum Stache
  • ******
  • Posts: 4376
  • Age: 41
  • Location: Florida
Re: Capital Gains Tax Changes
« Reply #4 on: December 08, 2017, 05:12:30 AM »
Thats a change I'd be okay with, 1 year is easier to game and drives financial decisions.   3 years is a legitimate long-term investment.

smallstache

  • Stubble
  • **
  • Posts: 144
Re: Capital Gains Tax Changes
« Reply #5 on: December 09, 2017, 10:43:53 PM »
The best tax policy for investors would be a 100% short term (<1 year) capital gains tax rate, ordinary income rates for holdings between 1 and 10 years, and 0% for holdings of more than 10 years.  This will effectively eliminate rules on like-kind exchanges and wash sales, and clean up messes caused by loser IPOs, high frequency trading, insider trading and penny stocks.

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1740
  • Location: West-by-god-Virginia
Re: Capital Gains Tax Changes
« Reply #6 on: December 10, 2017, 04:32:16 AM »
It looks like this change is aimed at closing the carried interest loophole for hedge fund managers.  It would not apply to individual investors.

https://www.dhgllp.com/resources/alerts/article/2083/tax-cuts-and-jobs-act-partnership-interest-held-in-connection-with-the-performa

Quote
The U.S. House of Representatives Committee on Ways and Means added an amendment to the Tax Cuts and Jobs Act that begins to address the tax controversy related to carried interests. The amendment imposes a three-year holding period requirement rather than the normal one-year requirement for qualification as long-term capital gain related to partnership interests that were acquired in connection with the performance of substantial services. The three-year holding period would not apply to any asset not held for portfolio investment on behalf of third party investors.

More on the carried interest loophole:

https://www.investopedia.com/articles/investing/102515/carried-interest-loophole-americas-tax-code.asp

chasesfish

  • Magnum Stache
  • ******
  • Posts: 4376
  • Age: 41
  • Location: Florida
Re: Capital Gains Tax Changes
« Reply #7 on: December 10, 2017, 04:47:19 AM »
As I'm reading it that would still apply to the publically traded MLPs.

I'm still good with this rule.  I don't see how a real estate investor doing a large flip in my neighborhood should pay capital gains rate on essentially their job income just because the flip is a large house that takes 13 months.

Can't say I'm on board with the poster who said a 100% capital gains tax rate, because lots of people like real estate rehabbers essentially appreciate assets for their day job.  Thats normal income tax rate stuff.

Indexer

  • Handlebar Stache
  • *****
  • Posts: 1463
Re: Capital Gains Tax Changes
« Reply #8 on: December 10, 2017, 04:44:43 PM »
I had not heard about this.

I did hear that they were looking at forcing all stock & ETF trades to go FIFO. Mutual funds could be FIFO or Average cost. This would do away with Specific Identification, which would also limit the effectiveness of TLH strategies.

Monkey Uncle

  • Handlebar Stache
  • *****
  • Posts: 1740
  • Location: West-by-god-Virginia
Re: Capital Gains Tax Changes
« Reply #9 on: December 11, 2017, 04:19:58 AM »
As I'm reading it that would still apply to the publically traded MLPs.

I'm still good with this rule.  I don't see how a real estate investor doing a large flip in my neighborhood should pay capital gains rate on essentially their job income just because the flip is a large house that takes 13 months.

Can't say I'm on board with the poster who said a 100% capital gains tax rate, because lots of people like real estate rehabbers essentially appreciate assets for their day job.  Thats normal income tax rate stuff.

I don't think it would apply to MLP shareholders, because they are not holding their portfolios on behalf of third party investors.  It appears that it could apply to the managing partner, but only if that partner is an individual and not a corporation.

Quote
The three-year holding period would not apply to any asset not held for portfolio investment on behalf of third party investors. The substantial services must be performed in a trade or business which consists of (a) raising or returning capital and (b) investing in, disposing of or developing securities, commodities, real estate held for investment or rental, cash or cash equivalents, options or derivative contracts. Qualifying partnership interests held by a corporation are exempt from the extended holding period requirement.

Likewise, I don't think it would apply to the individual real estate investor because he/she is not holding a portfolio on behalf of third party investors.

But I'm not a tax accountant, so please correct me if I am reading this wrong.

Roots&Wings

  • Handlebar Stache
  • *****
  • Posts: 1555
Re: Capital Gains Tax Changes
« Reply #10 on: December 11, 2017, 06:21:51 AM »
I had not heard about this.

I did hear that they were looking at forcing all stock & ETF trades to go FIFO. Mutual funds could be FIFO or Average cost. This would do away with Specific Identification, which would also limit the effectiveness of TLH strategies.

Related to this, did the provision mandating FIFO accounting for fund managers, including index funds, remain in the tax bill? That will increase taxable account capital gains distributions/decrease tax efficiency of index funds significantly if so.

The estimated taxes on my taxable account distributions is currently one my top expenses. If the distributions double or more, that will have large impact.

 

Wow, a phone plan for fifteen bucks!