Selling Equities Brokerage Account - Capital Gains - Retiring - ACA Eligibility

[jimmyshutter]

What strategy should I use to fund the purchase of a second home.

I am currently working and plan to work into 2025.
I plan to buy the home in either in 2025 or 2026.
I plan to sell equities from my brokerage account to fund this.
I plan on retiring in 2025.
I will need ACA until I become eligible for federal health insurance in 2027.

I could work half the year in 2025 and withdraw the full amount needed for a home from my brokerage account.
I could work most of 2025 and split withdrawals from brokerage account in both 2025 and 2026 to keep lower capital gains taxes.

I believe I should sell what I need before retiring so when I apply for ACA I won't have too high of AGI? Am I correct on this?

What else should I be concerned about? Am I way off in my thinking or is there a better way to approach this?

[secondcor521]

Well, "should" depends on how you decide to balance your goals.  I can see at least three in your post:  when to stop working, when to buy the house, and ACA eligibility.  That's really up to you.

ACA subsidies are based on your (M)AGI, which is line 11 of your Form 1040 modified by things that don't apply to most people.

Your job income and your capital gains will both contribute to AGI.  Other things add in there as well - check your most recent tax return and see what contributed to line 11 for you.

In 2024 and 2025, the 400% FPL cliff has been suspended and replaced by a slope.  In 2026, under current law, the 400% FPL cliff returns.

You can take a look at the KFF subsidy calculator or your state exchange to see what sort of ACA subsidy you get based on your AGI.

There's a lot more to it, but that's at least a start.

Other things I'd concern myself with if I were you would be purchase price / location of the second home, impact of the ongoing expenses on your FIRE plans, interest rate and mortgage options if you get a mortgage.  I personally wouldn't even get a second home, and I also wouldn't work longer to have one.  But that's just my preference; YMMV.

[reeshau]

What is your percentage gain on the investments you are looking to sell?

The long-term capital gains tax rate starts at 0%, up to $44,654 for singles and $89,250 for MFJ.  However, this comes after regular income; so if you work half the year, are single, and make $45k, then your LTCG will start at 15%.

It's not free money, but could be a significant dent in the business case to work part of the year.

You also, of course, only pay tax on the gains, not the full amount withdrawn.  If you had a 50% gain and withdrew $200k, you would have $100k taxable.  If you are MFJ, then with the standard deduction this could be tax free.  It does count toward MAGI, though, so it would impact your ACA cost.

Is there a reason you are in such a hurry for a second house?  Retirement is a major life change.  I would suggest you rather stretch this plan to 3-4 years.  This will give you time to adjust to your retired life, without making it more complicated so quickly.  It will also, of course, reduce the tax hit.

[jimmyshutter]

What is your percentage gain on the investments you are looking to sell?

The long-term capital gains tax rate starts at 0%, up to $44,654 for singles and $89,250 for MFJ.  However, this comes after regular income; so if you work half the year, are single, and make $45k, then your LTCG will start at 15%.

It's not free money, but could be a significant dent in the business case to work part of the year.

You also, of course, only pay tax on the gains, not the full amount withdrawn.  If you had a 50% gain and withdrew $200k, you would have $100k taxable.  If you are MFJ, then with the standard deduction this could be tax free.  It does count toward MAGI, though, so it would impact your ACA cost.

I assumed capital gains from the sale from a brokerage account counted towards AGI but wasn't sure so thanks for clarifying. I will do some "mock" selling to see how much I can sell while staying under MAGI to get an idea of my percentage gain. I am using SpecID for cost basis so I do have some control over this.

Is there a reason you are in such a hurry for a second house?  Retirement is a major life change.  I would suggest you rather stretch this plan to 3-4 years.  This will give you time to adjust to your retired life, without making it more complicated so quickly.  It will also, of course, reduce the tax hit.

My son is considering marriage in 2026 and wants to start a family some time after. I am currently a 12 hour drive away, single with no family in the area, only one good friend, and just a few acquaintances. Other than work and what I mentioned I have no reason to stay where I'm at. I'd be moving from a HCOL to a LCOL are with less severe winters and I'd be much closer to my daughter too.

The second home I am considering would be a house with an in-law apartment. My son would live there and pay me rent and I could use the in-law apartment for a vacation rental. This would give me time to evaluate if I wanted to move there. If I did decide to move I would have a place to live while trying to sell my current home. And if I decided I didn't want to move I could try renting it as AIR-BNB or a long-term rental unit that my son could manage.
 
I am not committing to moving at a certain date/year but am thinking about this now because this is a big financial and personal life decision. I see how a 3-4 year withdrawal plan would make more sense for tax purposes while also keeping under my MAGI for ACA purposes.

As mentioned above I will run some numbers by "mock" selling equities in my brokerage account. Since I used SpecID I can probably keep my percentage gains lower. I'll work on this and see what I come up with. Again, I'm still at the very early stages of deciding on what I'm going to do but want to plan for this in case I do decide to commit to this.