Author Topic: Long Term Capital Gains and Standard Deduction Question  (Read 1309 times)

Loren Ver

  • CM*MW 2023 Attendees
  • Handlebar Stache
  • *
  • Posts: 1223
  • Location: Midwest USA
  • I Retired. Yah!
Long Term Capital Gains and Standard Deduction Question
« on: August 11, 2018, 10:47:31 AM »
I am working one some of the finer points of the retirement plan and have (what I hope is a simple) question.

Does the standard deduction apply to capital gains?

Or more specifically - if DH and I pull our only income from a taxable investment, placing it in the long terms capital gains territory, does the $24000 standard deduction apply (married filing jointly)? 

For example if we pull out $77,500 from a taxable account (normally in the 15% capital gains tax bracket), do we minus out $24,000, leaving us with $53,500, all of which would be taxed a 0%.  Is this correct?


Thank you for the help, taxes aren't my strong suit!

LV

terran

  • Magnum Stache
  • ******
  • Posts: 3796
Re: Long Term Capital Gains and Standard Deduction Question
« Reply #1 on: August 11, 2018, 10:57:50 AM »
Even better, it's actually the other way around. Take your capital gains, subtract your standard deduction, and that's the amount of capital gains that is taxable at whatever bracket the income falls in (including the 0% bracket). So you can have $77,200 + $24000 = $101,200 of long term capital gains and pay no tax. Of course if you have that much in taxable you'll have some dividend income too.

From an optimization standpoint, since all types of income pay no tax under the standard deduction you'll want to try to fill the standard deduction with income from other sources like conversions from traditional to Roth IRA as capital gains aren't taxed up to a much higher limit. So, ideally you'd convert $24k (less however much interest income you have) and then realize $77,200 of capital gains. Or, if you have large traditional IRA balances you might want to take that to the top of the 10% bracket. Just depends on how much you have in traditional IRAs vs unrealized long term capital gains.

Loren Ver

  • CM*MW 2023 Attendees
  • Handlebar Stache
  • *
  • Posts: 1223
  • Location: Midwest USA
  • I Retired. Yah!
Re: Long Term Capital Gains and Standard Deduction Question
« Reply #2 on: August 11, 2018, 11:03:47 AM »
That's really interesting!  Thank you!!

I was hoping it would be something like that.

Now I need to figure out how to balance that out with my ACA subsidies....

honeyfill

  • Bristles
  • ***
  • Posts: 321
  • Age: 66
  • Location: Tucson
Re: Long Term Capital Gains and Standard Deduction Question
« Reply #3 on: August 11, 2018, 07:44:00 PM »
Yes, you should be able to combine ACA calculations with capital gains tax calculations, with the 0% and 10 % brackets, the standard deduction  and Roth conversions to get an optimal withdrawal strategy.  I've seen it done with the old tax rates but not with the new ones.  I'll look around for someone who has already done it. OR if I can find the time between Golf, travel and my honeydew list, I 'll put together a spreadsheet myself.

MDM

  • Senior Mustachian
  • ********
  • Posts: 11477
Re: Long Term Capital Gains and Standard Deduction Question
« Reply #4 on: August 12, 2018, 12:39:38 AM »
Yes, you should be able to combine ACA calculations with capital gains tax calculations, with the 0% and 10 % brackets, the standard deduction  and Roth conversions to get an optimal withdrawal strategy.  I've seen it done with the old tax rates but not with the new ones.  I'll look around for someone who has already done it.
Try the case study spreadsheet.  Does that work for you?

Loren Ver

  • CM*MW 2023 Attendees
  • Handlebar Stache
  • *
  • Posts: 1223
  • Location: Midwest USA
  • I Retired. Yah!
Re: Long Term Capital Gains and Standard Deduction Question
« Reply #5 on: August 13, 2018, 02:46:52 PM »
Ohh, gonna need to check out the spreadsheet. 

I am just running around in circles with this stuff.

Loren Ver

  • CM*MW 2023 Attendees
  • Handlebar Stache
  • *
  • Posts: 1223
  • Location: Midwest USA
  • I Retired. Yah!
Re: Long Term Capital Gains and Standard Deduction Question
« Reply #6 on: August 13, 2018, 03:05:19 PM »
Yes, you should be able to combine ACA calculations with capital gains tax calculations, with the 0% and 10 % brackets, the standard deduction  and Roth conversions to get an optimal withdrawal strategy.  I've seen it done with the old tax rates but not with the new ones.  I'll look around for someone who has already done it. OR if I can find the time between Golf, travel and my honeydew list, I 'll put together a spreadsheet myself.

That would be totally cool.  I'm doing it a bit by bit but it is slow going.