Capital Gains avoidance for mutual fund sales.

[Ed Duncan 630]

Can I avoid paying capital gains taxes on the sale of 100% of one mutual fund, if I also purchase another mutual fund at the same time and immediately after, using 100% of the proceeds from the first sale, to purchase the new mutual fund? All transactions being done within my account at a Fianacial Company (Vanguard) where I have a long-standing account. The first fund was a 'Vanguard Total US Stock Market' fund and the new fund was a 'Fixed Securities', Vanguard Federal Money Marked fund. 

I'm not trying to avoid tax liability, just trying to avoid a large lump sum taxable amount which will jump me up some number of income tax brackets in the 2021 tax year. 

[FangxiaL]

You cannot avoid paying tax on the capital gain when you sold your mutual fund, even if you used all the sales proceeds to buy a new mutual fund. 

[Ed Duncan 630]

Thank you for your concise answer. Since this long-term gain was accumulated over seven years, is there, (1). a way to reduce the taxes owed or, (2). is there a way to prevent this nearly $100,000 gain from moving us up into a much higher tax bracket this year?

[RaifH]

Most tax deferment strategies you may have been able to take, like selling underperforming stocks in the same year to help offset the large capital gains or selling it off in smaller chunks are no longer an option. 

The best you can do now is contribute to a tax-deferred account like an IRA or an HSA (if you have a high deductible health plan) to reduce your taxable income this year. You have until the filing deadline of April 18, 2022 to make a contribution to one of these accounts. However, if you or your spouse are covered by a retirement plan at work, you may not be able to get a deduction for a contribution this year. See the charts here to determine if this is a viable strategy. 

The good news is that since this is a long-term capital gain, it is taxed at a much lower rate than your ordinary income tax rate. 

[Ed Duncan 630]

Thank you very much. Your ideas have all been good and accurate. I appreciate your help, but it looks like I'm 'out of luck' this year. I'm 82 years old, my wife is 81 and we have no working income that qualifies for putting in an IRA. We're living off of Social Security, an apartment rental, investments and a small pension from my career job that I retired from in 1995 when I was 55 years old. I believe none of my income is considered 'qualified' for IRA depositing.

I see now why smart investors have been 'taking profits' on a regular basis even though they don't need the income.  I don't need this $100,000 of additional income to live on this year either but it's going to kick me up into a higher tax bracket which will hit all my income. I made a mistake out of fear of our current government crashing the stock market. Which may still happen but it didn't happen last year so it looks like that's going to nailing me good. I even took a much larger amount out of the market in another account but it was inside an IRA which won't be taxed at least until I withdraw it.