Author Topic: Should I sell now just to take capital gains tax free?  (Read 1349 times)

BTDretire

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Should I sell now just to take capital gains tax free?
« on: September 01, 2018, 03:48:17 PM »
 I'm 64 about to start living on my money, 1 to 3 years.
I have about $600k in regular taxable savings mostly in VTSAX.
About $200,000 of that is Long term Capital Gains.
 Assuming I'm in the 12% tax bracket, does it make sense to sell just enough of my LTCG
to keep me under $77,200 to reset the cost basis of that money.
Also, If I sell VTSAX, is VOO a "substantially different investment?
If Not, what is?

 EDIT To add, I'm looking at filing jointly, Earning up to $77,200 keeps you in the 12% bracket,
Would that be line 43? at least on the 2017 1040?
« Last Edit: September 01, 2018, 03:53:23 PM by BTDretire »

oldladystache

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Re: Should I sell now just to take capital gains tax free?
« Reply #1 on: September 01, 2018, 04:36:24 PM »
Yes, absolutely. Don't forget state taxes though.

You don't need to worry about substantially different if you're taking gains. That rule just applies to losses.
« Last Edit: September 01, 2018, 04:39:59 PM by oldladystache »

BTDretire

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Re: Should I sell now just to take capital gains tax free?
« Reply #2 on: September 01, 2018, 04:51:59 PM »
Yes, absolutely. Don't forget state taxes though.
No state taxes here.
Quote
You don't need to worry about substantially different if you're taking gains. That rule just applies to losses.
Silly me, I have given that same info to others.
« Last Edit: September 04, 2018, 05:56:07 AM by BTDretire »

Catbert

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Re: Should I sell now just to take capital gains tax free?
« Reply #3 on: September 01, 2018, 05:41:38 PM »
Yes, harvest those gains for zero tax

MDM

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Re: Should I sell now just to take capital gains tax free?
« Reply #4 on: September 01, 2018, 06:51:59 PM »
Doing trad->Roth conversions in the 12% bracket now, if you expect to be in higher brackets later, may be even more advantageous than 0% LTCG rates.

As already noted, no wash sale concerns when you take gains.  If you did have losses and were concerned with wash sales, the sell/buy funds need only be "not substantially identical" instead of "substantially different".  The S&P 500 and the total U.S. stock market are indeed "not substantially identical."

terran

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Re: Should I sell now just to take capital gains tax free?
« Reply #5 on: September 01, 2018, 08:36:05 PM »
Doing trad->Roth conversions in the 12% bracket now, if you expect to be in higher brackets later, may be even more advantageous than 0% LTCG rates.

Maybe I'm not thinking this through right, but wouldn't saving 15% on capital gains be better than saving 10-12% on traditional -> Roth conversion in the 12% vs 22% or 24% bracket?

MDM

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Re: Should I sell now just to take capital gains tax free?
« Reply #6 on: September 01, 2018, 08:48:24 PM »
Doing trad->Roth conversions in the 12% bracket now, if you expect to be in higher brackets later, may be even more advantageous than 0% LTCG rates.

Maybe I'm not thinking this through right, but wouldn't saving 15% on capital gains be better than saving 10-12% on traditional -> Roth conversion in the 12% vs 22% or 24% bracket?
If one will withdraw the money and spend it immediately, that's correct.

The longer the money can grow tax free, however, the more favorable the Roth conversion becomes.

See the latest Case Study Spreadsheet version for an attempt to quantify this.

MustacheAndaHalf

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Re: Should I sell now just to take capital gains tax free?
« Reply #7 on: September 02, 2018, 03:24:11 AM »
You might want to check last year's tax documents for VTSAX so you can estimate the dividends you'll receive this month and in December.  Take those dividends into account when you try to maximize your 0% LTCG tax bracket, since qualified dividends occupy that tax bracket as well.

Although it won't matter when you sell for a gain, VOO and VTSAX are asset classes of the same fund.  So they are identical, not just substantially identical.  Note you can buy Schwab and iShares ETFs at Vanguard for $0/trade now, which is a new development.  So when the time comes to harvest losses, you could sell VTSAX and buy iShares Core S&P 500 (IVV).

terran

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Re: Should I sell now just to take capital gains tax free?
« Reply #8 on: September 02, 2018, 06:18:28 AM »
Doing trad->Roth conversions in the 12% bracket now, if you expect to be in higher brackets later, may be even more advantageous than 0% LTCG rates.

Maybe I'm not thinking this through right, but wouldn't saving 15% on capital gains be better than saving 10-12% on traditional -> Roth conversion in the 12% vs 22% or 24% bracket?
If one will withdraw the money and spend it immediately, that's correct.

The longer the money can grow tax free, however, the more favorable the Roth conversion becomes.

See the latest Case Study Spreadsheet version for an attempt to quantify this.

You're right. That's what I was missing.

MDM

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Re: Should I sell now just to take capital gains tax free?
« Reply #9 on: September 02, 2018, 08:10:37 AM »
Although it won't matter when you sell for a gain, VOO and VTSAX are asset classes of the same fund.
VOO is the ETF for the S&P 500.

VTSAX is the index fund for the total US stock market.

Much Fishing to Do

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Re: Should I sell now just to take capital gains tax free?
« Reply #10 on: September 04, 2018, 12:52:18 PM »
If you did have losses and were concerned with wash sales, the sell/buy funds need only be "not substantially identical" instead of "substantially different".  The S&P 500 and the total U.S. stock market are indeed "not substantially identical."

That's interesting, I never really thought about how to decide upon that line whether substantially identical or not.  Are Vanguard Target retirement 2040 and 2045 'substantially identical"?  are there any guidelines on this out there?

MDM

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Re: Should I sell now just to take capital gains tax free?
« Reply #11 on: September 04, 2018, 01:47:45 PM »
If you did have losses and were concerned with wash sales, the sell/buy funds need only be "not substantially identical" instead of "substantially different".  The S&P 500 and the total U.S. stock market are indeed "not substantially identical."

That's interesting, I never really thought about how to decide upon that line whether substantially identical or not.  Are Vanguard Target retirement 2040 and 2045 'substantially identical"?  are there any guidelines on this out there?
The IRS has never given a clear definition.  But looking at the overall asset allocations of https://investor.vanguard.com/mutual-funds/target-retirement/#/mini/overview/0696 vs. https://investor.vanguard.com/mutual-funds/target-retirement/#/mini/overview/0306, I'd be comfortable saying those are "not substantially identical" - what do you think?

MustacheAndaHalf

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Re: Should I sell now just to take capital gains tax free?
« Reply #12 on: September 05, 2018, 01:24:30 AM »
Although it won't matter when you sell for a gain, VOO and VTSAX are asset classes of the same fund.
VOO is the ETF for the S&P 500.

VTSAX is the index fund for the total US stock market.
Oops, I was thinking VTI and VTSAX.  I stand corrected: VOO tracks the largest ~500 publicly traded companies, while VTSAX tracks the entire market, including small caps.  So they track different indices, and are not substantially identical.

Which is too bad I mentioned it, since it detracts from my more important point: VTSAX issues dividends which use up LTCG space.  Estimating dividends becomes more important as OP's taxable VTSAX holdings grow.

jim555

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Re: Should I sell now just to take capital gains tax free?
« Reply #13 on: October 02, 2018, 06:51:37 AM »
Sell lock in the gain and buy it one second later.  This resets your basis to a higher level.  Since it is not a loss there is no 30 day wait or risk of a "wash sale".

BTDretire

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Re: Should I sell now just to take capital gains tax free?
« Reply #14 on: October 02, 2018, 07:24:04 PM »
I'm a bit mad about the fact I didn't know that I should have taken my
LTCGs over the last several years when I was in a low tax bracket.
 I had kid deductions and tuition credits and more, making my taxes very low.
 I just checked I have about $200k of cap gains so it's not as bad as I thought.
 But still, I probably could have brought it down to only $40k or $50k if I had started
selling and rebuying 6 or 7 years ago.

slow n steady

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Re: Should I sell now just to take capital gains tax free?
« Reply #15 on: October 08, 2018, 01:43:02 AM »
Actually I believe you are forgetting to add the standard deduction so you could tax gain harvest 77,200 + 24,000 = $101,000  I would play around in an online calculator to see what works. 

Good Luck!