Offsetting carryover capital losses in 2018?

[davenport32]

Happy New Year! In the spirit of getting a head start in 2018 on things I failed to resolve in 2017, here's my question:

I have about $43k in capital losses carried over from 2016 (when I sold a lot of stock to buy an apartment). I'm trying to figure out if I should actively take gains in 2018. I'm in grad school and am presumably in a lower tax bracket than I will be in 2019 or 2020. My thought would be to sell some of my portfolio at Vanguard for the gains, wait the month, and then buy it back.

I asked my advisor at Vanguard about this during the summer, and he held their party line to not do anything (basically that it sounded too much like timing the market). I get it, but I also doubt that he's thinking about tax implications the way an accountant would.

I am very much a devotee to the Vanguard approach, but I also wonder if there's a sensible middle ground in my situation. Am I missing a good reason to just hold those losses indefinitely? Any advice would be much appreciated! Thanks so much in advance.

Here's more on my situation, in case that affects any calculations:
— 29, currently in grad school
— income for 2018 is likely in the $30k range (school jobs, freelancing, family real estate situation) 
— hoping to make in the $85-100k range after graduating
— overall, extremely lucky financially (no debts, significant investments, engaged to someone equally lucky, etc.)

[maizefolk]

In your situation, wouldn't it be more valuable to carry forward the capital losses so that they can be used to offset regular income ($3,000/year) or capital gains in future years when you've graduated and are in in a significantly high tax bracket?

Right now, at $30k/year at least the first part of any capital gains you generating by selling and repurchasing stock would be taxed at 0% since you're still in the old 15% tax bracket, so you wouldn't benefit at all from using up your capital losses.

Once you're making a six figure salary, that would would put you in the new 22% or 24% income tax bracket, so the $3,000 of capital losses you could apply to your salary each year would be worth $660-720 in reduced taxes per year until you used the losses up. And each $1,000 of losses used to offset future capital gains once you're in the 15% capital gains tax bracket would be worth $150 in reduced taxes.

This all assumes the ability to offset $3,000/year of regular income using capital losses hasn't been phased out in the new tax bill. If it has I haven't seen it mentioned.

[davenport32]

Thank you so much, maizeman! This is *exactly* the breakdown I was hoping for. Your strategy does indeed make more sense than what I had in mine.

I actually had no idea about the 0% capital gains tax in my bracket, so thank you for that gem as well. Really appreciate your help!

[maizefolk]

Not a problem, and happy to hear the explanation was helpful. The division of both income and losses into separate active, passive, and capital buckets was one of the more confusing aspects of the tax code to me for a long time. And it got worse with the new tax bill since capital gains tax brackets are no longer tied to the same thresholds as regular income tax brackets.

I _think_ that you'd be in the 0% long term capital gains tax bracket for your first $50,600 of combined regular and capital gains income under the new plan ($12,000 standard deduction + $38,600 0% tax rate on long term capital gains).