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fosterinfinland2
New Member

Harvesting the 0% tax rate on Long Term Capital Gains on Stocks, with zero income

Hi,

 

I have zero income for 2019.  I have zero short term capital gains.  I have (15,000) short term capital loss carryover. I want to harvest my unrealized long term capital gains (over 1 year) but i don’t know exactly how much to sell to stay below the $40,000 tax bracket, still paying 0% federal income tax.  (Not worried about state tax, living abroad).  

 

Is this how it would be calculated:

 

long term capital gains - capital loss carryover - standard deduction = tax bracket i am in?

 

For example:  I sell $65,000 long term capital gains - $15,000 capital loss - $12,800 standard deduction = $37,200 (I stay below the $40,000 income bracket, which means I get charged 0% federally on those gains) (again i have lived abroad for years, don’t pay the state tax)

 

Is this correct?  Any references t confirm this i can read?  

 

jeff

 

3 Replies
DanielV01
Employee Tax Expert

Harvesting the 0% tax rate on Long Term Capital Gains on Stocks, with zero income

Those calculations are essentially correct.  The standard deduction for 2019 is $12,400 for a single filer, not $12,800, but your general calculations are correct.  The following link has more information: Tax Topic 409, Capital Gains and Losses | IRS.  On that site you will see the following quote:  

 

 

If you have a net capital gain, a lower tax rate may apply to the gain than the tax rate that applies to your ordinary income. The term "net capital gain" means the amount by which your net long-term capital gain for the year is more than your net short-term capital loss for the year. The term "net long-term capital gain" means long-term capital gains reduced by long-term capital losses including any unused long-term capital loss carried over from previous years. The tax rate on most net capital gain is no higher than 15% for most taxpayers. Some or all net capital gain may be taxed at 0% if you're in the 10% or 12% ordinary income tax brackets.

(Bolding added for emphasis)

 

So, your $15,000 capital loss is recouped against your net capital gains, and then, if all of your taxable income being reported are capital gains, the income is further reduced by your Standard Deduction (or Itemized Deductions) to arrive at your taxable income.  Your taxable income is what is considered to determine your capital tax rate, which, if you are in the 10 or 12% tax bracket, will be 0%.  One caution:  if you are using the Foreign Income exclusion, and your Capital Gains are not included in the excluded amount, you could be in the 15% Capital Gains Bracket.  Although Foreign Income Exclusion does keep that portion of income from being taxable, it is still counted with respects to determining your marginal tax rate.  But if you have no such income, then your calculations are correct, and you would do well to utilize as much Capital Gain that you can fit at 0% because whatever income you elect to take that qualifies as Capital Gain will need to be reported, if for no other reason than it reduces the Short-Term Capital Loss that you have stockpiled.

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billprit
Level 1

Harvesting the 0% tax rate on Long Term Capital Gains on Stocks, with zero income

Hi, I have long term capital gains appearing on line 7 even though our joint net income is less that $80,000.  Is there another line or worksheet that I am missing?  Thanks.

ErnieS0
Employee Tax Expert

Harvesting the 0% tax rate on Long Term Capital Gains on Stocks, with zero income

@billprint You capital gains will still appear on line 7 of Form 1040, regardless of the tax rate. However your tax on the capital gains will be calculated on the Qualified Dividends and Capital Gain Tax Worksheet.

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