LTCG Strategy - Isn't this a good idea

[roninshawneeKS]

Tax Guys-

The Question: EVERY YEAR, as a matter of strategy, shouldn't a person with LTCGs strive to take advantage of the 0% tax on the first $47,000 of LTCGs taxed at 0%.

Given a lot of other situations along with this question (number and amount of LTCGs you have, need for the money, timing, IRMAA, etc. etc.) - in general, isn't the above strategy for reducing your taxes at a later date a good idea.

For instance, say you had thousands (which I don't) of shares of Apple stock held for many years with large LTCGs - you can sell some of it (i.e. $47,000 of 0% Gains-worth) and then turn around and buy it back with no cost and no other effect on your taxes, can't you.

Sorry, but it has taken me a long time to figure this out and am just looking for a little verification here that this is a good strategy - wanting to avoid the "consult with your own attorney response" if I ask this question elsewhere - because I know there are a lot of smart tax guys out here in this Community.

ron in shawnee

[Bsch4477]

Yes, that works as long as your taxable income stays below that level but remember that the profit on the sale is included in your taxable income and that could push you over that threshold. 
You also have to consider whether you have a state tax since most states don’t tax capital gains preferentially. 

[Mike9241]

It doesn't work that way unless your only income is LTCG and Qual Div. First other income is taken into account. then LTCG and Qualified dividends are added to determine what tax bracket they fall into

for example a single person using the standard deduction with about $53,000 in other income and $47,000 of LTCG/Qual dividends would pay 15% tax on about $38,000 of that $47,000

[roninshawneeKS]

Champ-

Thanks for the response - I knew it wasn't as simple as I thought.

Thought I understood your response, at first - but let me soak it in - and will probably get back to you for more clarification.  (Haven't quite got it figured out yet, to the point of fully understanding how it works.)

ron in shawnee

[dmertz]

The LTCG income sits on top of your other income.  The tax bracket into which it falls depends on your total income, not just your LTCG income.  If for 2024 you file as single, your LTCG will remain in the 0% tax bracket if your total taxable income does not exceed $47,025.  If you have $47,025 or more of taxable income without the LTCG, all of your LTCG will fall above the 0% LTCG tax bracket.  If you have less other income than that but when the LTCG is added it totals more than $47,025, some of the LTCG will be taxed at 0% and some will be taxed at 15%.  (If you have enough LTCG to bring your total taxable income to more than $518,900, some of the LTCG will be taxed at 20%.)

[roninshawneeKS]

OK Champ & dmertz for the follow-ups:

Sorry for the late reply - got sidetracked up with Christmas stuff.  Anyway, I think I am OK now - and have it figured out AGAIN.

I know I had this figured out at one time way back when, but I seemed to have forgotten the details without your follow-ups (probably because back when, I realized they did not apply to me, except for the 15% help).  The thing I keep forgetting (overlooking) is that the LTCG brackets are based on "Taxable Income" (those rats).  So I think I am all square again - unhappy - but back to understanding it.

It will work nicely for my sister who is all SS & LTCG, but just not for me - just wishing they would exclude LTCG from the IRMAA calculations.  You are not rich any more at the 1st IRMAA bracket at around $100K - but this is not the place to go off on IRMAA.

BUT I could go off on the LTCG bracket - $47K is WAY TOO LOW for the 1st 0% LTCG cutoff.

Thanks again for the refresher.

ron in shawnee

[M-MTax]

just wishing they would exclude LTCG from the IRMAA calculations. 

Welcome to "your fair share". My problem with that is the calcs are not linear. For example, from the lowest bracket to the highest is around 3.75 times while the adjustment from the lowest to the highest is over 6 times. Makes little sense......very little. 

[Mike9241]

@roninshawneeKS      there is also the issue of state income taxes and if your income is high enough the NIIT tax.  Even if taxed at a low rate, the full amount of your gain adds to your adjusted gross income which can affect tax credits and other items on your return. To determine the effect of realizing LTCG, it's necessary to go through a full tax analysis

[VolvoGirl]

@roninshawneeKS  And what do you mean….

buy it back with no cost and no other effect on your taxes?

Then what would be the point of selling it?

[dmertz]

The point of selling it and repurchasing it would be to harvest the capital gain in a year when it would be taxable at a rate that is less than what it would be if sold in a later year.  The sale and repurchase resets the cost basis to the repurchase price.  You are pulling into the current year what would otherwise be taxable gain in a future year.

[roninshawneeKS]

dmertz-

Yes, that was the idea - particularly if you had 500 shares of something like Apple or Nvidia - sell 100 to reset the basis and keep doing that every year, depending on your tax situation - and I was particularly thinking of the 0% LTCG tax rate when I suggested this.  Really a good deal if the other income works out to support that strategy - and it even works at the 15% level as you have noted, just much less so.

ron in shawnee