I’ve got a few stocks with some big long-term gains. Right now, my wife and I are in a 0% tax bracket for long-term capital gains because she’s still in school. Next year, she’ll be working, which could push us into the 15% tax bracket. If I sell these stocks now, I’d get a tax-free gain and could just buy them back to keep holding them. Since the wash sale rule only affects losses, there shouldn’t be any issue with buying them right back, right? Am I missing anything? Would love to hear some advice. Thanks!
Everything you’ve written checks out. Just keep state taxes in mind. Also, raising your AGI could impact things like benefits or loan qualification, so something to think about.
If you say “very large,” remember that any gain from the sale will affect your income bracket. If you’re near the cutoff, some of the gain might already be taxed at 15%.
Caden said:
If you say “very large,” remember that any gain from the sale will affect your income bracket. If you’re near the cutoff, some of the gain might already be taxed at 15%.
Thanks for the heads up. So if I make $60k and have $40k in LTCG, would 34k of the gains be taxed at 0% and the other 6k at 15%? Or does the entire amount get taxed at 15% if I go over the limit?
Ever heard of bracket harvesting? It’s where you sell stocks at a gain in lower tax brackets and buy right back in to lock those gains tax-free. Wash sales only apply to losses, so no worries there, but just be cautious of how long-term vs. short-term might play into your strategy.
Sell as much as you can and just buy back right away if you still want to hold them! If it’s tax-free, might as well raise your cost basis as much as possible.
I’m not a pro, but I believe this is called tax gain harvesting. You sell the LTCG stocks and buy back to reset your cost basis. Hard to say how much you’ll be able to pull off, but maybe check with a CPA. What’s your estimated income for the year? Also, even if you’re in the 0% federal rate, watch out for state taxes.
Good idea to reset your cost basis at the 0% rate. Just note that you might only be able to do part of it tax-free, depending on how much it is. State taxes could still apply.