I have never harvested any capital gains before but have been researching this trying to wrap my head around it since our income is relatively low and we have shares of VTSAX sitting in a taxable account from years ago, as part of our future FIRE portfolio. I just want to see if I am missing something.
We file taxes married filing jointly. Our 2018 projected AGI should be about $60,000.
Since we can make up to $77,400 and still stay in the 12% tax bracket (12% bracket means we pay 0 on Long Term Capital Gains), that means we could harvest up to $17,400 in gains and pay 0 federal tax? (We are in Nebraska so I believe we would still owe state taxes on the gains, and the little research I’ve done shows it would be taxed in Nebraska like regular w2 income).
Questions:
- As an example, would I just sell 50k VTSAX (bought for 32,600 as a cost basis, for example), and then could immediately buy a S&P500 index fund back the same day (50k worth)? (although my cost basis would be more complicated since I bought in over a couple years every 2 weeks (dollar cost averaged) from my paychecks.)
-if we accidentally make more money this year than planned, and say our AGI ends up being $77,600 so we are in the 15% tax bracket, would the full $17,400 in gains then be taxed (even though we barely went over into the next tax bracket), and would owe 15% on the total gains so we’d owe $2610 in federal taxes? (.15 * 17400).
-Is there any reason not to harvest LTCG in our case, having a relatively low income? The only one I can see is that we would owe state taxes, which I would have to research how much we’d end up owing on that $17,400 gain.