Should I sell my stock now for tax reasons?

I’m 20 and make under 48k a year. I made some decent capital gains and I don’t know if I should sell (I would buy back the same position). If I sell now, won’t I avoid the federal capital gains tax? I’m in Illinois and I believe I would have to pay state capital gains tax regardless.

Only the long term capital gains (gains on assets held for over one year) that bring your total taxable income after the standard deduction up to $47,025 will be taxed at 0%. For gains beyond that, they would be taxed at 15%. Tax gain harvesting does make sense, but you want to make sure your total taxable income after the standard deduction doesn’t exceed $47,025 or you will have to start paying taxes on the gains that push your income beyond that threshold.

@Farrell
Thank you. I know my positions haven’t been held for a year yet, so I will wait until then. I do have some realized losses. Could I write these losses off my total taxable income?

Terry said:
@Farrell
Thank you. I know my positions haven’t been held for a year yet, so I will wait until then. I do have some realized losses. Could I write these losses off my total taxable income?

Losses are applied against gains first, then you can deduct up to $3,000 of losses against other income. This only works if you don’t buy the same investment again within 30 days. Since your marginal tax rate is 12%, I’d probably wait until deducting the losses will save you a higher percentage of tax.

@Mica
Can you explain that last part? I can only write off these losses for this year, right? So what do I wait for? Thanks

Terry said:
@Mica
Can you explain that last part? I can only write off these losses for this year, right? So what do I wait for? Thanks

They may have missed that you said realized losses. Yes, they have to be included in the year the sale took place.

If they exceed the amount of realized capital gains you had, you may end up with some amount of loss to carry forward to future tax years.

I think the rest of the comment about waiting has to do with any currently-held positions that are in the red - you may as well not realize these losses until a year in which you expect to have a higher tax bill to offset.

@Dru
OP needs to look up wash sale rules too.

A few other things to consider.

First, are all of your unrealized gains long term (meaning you’ve held them for longer than 1 year)? If yes, then you would be eligible for long-term capital gain treatment. If held for shorter than 1 year, there is no preferential treatment.

Second, if you happen to sell any stocks that are currently at a loss and buy them back within 30 days, the loss will be disallowed (wash sale rules). So be careful with this.

Lastly, if the long-term capital gains put you over the $48,350 taxable income threshold in 2025, then a portion of the capital gains may be taxed at the 15% tax rate instead of 0%. Depending on how close your income is to the threshold, you may want to recognize the gains over a few years to get the lowest tax rate.

You should have done that (capital gains harvesting) in December. It’s 2025.

Otherwise, if you make 48k a year, that’s $33k after the standard deduction (for 2025). So, you should be able to harvest about 15k of long-term capital gains this year. Long-term capital gains are 0% rated up to $48,350 for 2025.

Short term can’t be harvested because they are at your normal income rate. Assets have to be held for one year.

The biggest issue I think you don’t understand is that it’s too late to take advantage of any 2024 rates. You file by April each year, but it’s for the previous calendar year.

Important! If you have an ACA plan, your effective tax rate isn’t 0% on your gains. This is because your capital gains increase your MAGI, which results in a clawback.

In my case, even though I could harvest around $10k in capital gains at ‘0%’, I’d be paying around 6% in clawback on form 8962. And if you have a QSHERA, it can be even more.

It makes sense to fill up your 0% long-term capital gains bucket, yes. For single filers in 2025, the 0% and 15% buckets fill at $48,350 and $533,400. It’s 20% above that.

I’m unsure if you live with your parents or receive support from them (or elsewhere), but you may be subject to the kiddie tax.

With an income around 48k, it’s unlikely that your income would fall under half of your support.

You’re letting the tax tail wag the dog. Are these good investments? Hold onto them.

Mal said:
You’re letting the tax tail wag the dog. Are these good investments? Hold onto them.

All good long-term ETF investments. I was thinking of just selling for tax reasons and buying back asap.

@Terry
I’ll give you some tax advice. It’s better to pay taxes in the future than in the present.

Mal said:
@Terry
I’ll give you some tax advice. It’s better to pay taxes in the future than in the present.

How is that smart if OP can get a 0% tax rate? Dumb.

@Terry
Google wash sale and realize your whole plan falls apart.

Orion said:
@Terry
Google wash sale and realize your whole plan falls apart.

I’m selling at a profit.

Terry said:

Orion said:
@Terry
Google wash sale and realize your whole plan falls apart.

I’m selling at a profit.

This will count for 2025. Will you still be under the $48k this year? Even with the gains?