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germann949
New Member

Recently started investing on the stock market and am wary of selling stocks at a relative peak (already missed one) because I'm unsure how it will affect my return.

Every website I search gives a slightly different answer. Am I taxed differently based on how long I hold the stock, how much my income tax is, and then I read a little bit about a wash rule?
1 Best answer

Accepted Solutions
Hal_Al
Level 15

Recently started investing on the stock market and am wary of selling stocks at a relative peak (already missed one) because I'm unsure how it will affect my return.

Like everything else in the great American tax system, it's complicated, 

 Capital gains and losses are classified as long term if the asset was held for more than one year, and short term if held for a year or less. Taxpayers in the 10 and 15 percent tax brackets pay no tax on long-term gains on most assets; taxpayers in the 25 to 35 percent income tax brackets face a 15 percent rate on long-term capital gains. For those in the top 39.6 percent bracket, the rate is 20 percent. Short-term capital gains are taxed at the same rate as ordinary income. There also is a 3.8 percent tax on net investment income for single taxpayers with modified adjusted gross income above $200,000 ($250,000 for married couples filing jointly). Capital gains in some cases face an effective tax rates above the 23.8 percent statutory rate because of phaseouts in the tax code. Reference: http://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed

If you have a large enough long term capital gain, to push your total income into the 25% bracket, some of your gain will not be taxed (effectively taxed at 0%) and some will be taxed at 15%.

The "wash sale" rule only applies to capital losses. It prevents people from claiming a deductible loss on a stock sale and then quickly buying the stock back.

So, when do the brackets start and end? See: https://taxfoundation.org/2017-tax-brackets/   Taxable income is total income less adjustments, deductions and exemptions.

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3 Replies
Rainman12
Level 9

Recently started investing on the stock market and am wary of selling stocks at a relative peak (already missed one) because I'm unsure how it will affect my return.

You pay the least tax on long-term gains (held more than one year).
TomYoung
Level 13

Recently started investing on the stock market and am wary of selling stocks at a relative peak (already missed one) because I'm unsure how it will affect my return.

But in any case "taxes" shouldn't be a dominant driver in your decision to sell or not.  Think the stock (and company) you've invested in isn't going to fare well in the future?  Then you sell.  Think the stock you've invested in has "legs"?  Then don't sell.

IF you sell at a profit, particularly if the profit is long term, THEN you'll still be money ahead after taxes.
Hal_Al
Level 15

Recently started investing on the stock market and am wary of selling stocks at a relative peak (already missed one) because I'm unsure how it will affect my return.

Like everything else in the great American tax system, it's complicated, 

 Capital gains and losses are classified as long term if the asset was held for more than one year, and short term if held for a year or less. Taxpayers in the 10 and 15 percent tax brackets pay no tax on long-term gains on most assets; taxpayers in the 25 to 35 percent income tax brackets face a 15 percent rate on long-term capital gains. For those in the top 39.6 percent bracket, the rate is 20 percent. Short-term capital gains are taxed at the same rate as ordinary income. There also is a 3.8 percent tax on net investment income for single taxpayers with modified adjusted gross income above $200,000 ($250,000 for married couples filing jointly). Capital gains in some cases face an effective tax rates above the 23.8 percent statutory rate because of phaseouts in the tax code. Reference: http://www.taxpolicycenter.org/briefing-book/how-are-capital-gains-taxed

If you have a large enough long term capital gain, to push your total income into the 25% bracket, some of your gain will not be taxed (effectively taxed at 0%) and some will be taxed at 15%.

The "wash sale" rule only applies to capital losses. It prevents people from claiming a deductible loss on a stock sale and then quickly buying the stock back.

So, when do the brackets start and end? See: https://taxfoundation.org/2017-tax-brackets/   Taxable income is total income less adjustments, deductions and exemptions.

View solution in original post

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