I have a couple of stocks with significant long-term capital gains. My wife and I currently fall into the 0% long-term capital gains tax bracket, but she’ll be starting a job next year, which could move us into the 15% bracket. Should I sell these stocks to lock in a tax-free gain and then buy them back immediately if I still want to hold them? From what I understand, wash sale rules apply only to capital losses, so I should be able to repurchase shares right away without issue. Any thoughts?
Your plan is sound. Wash sales only apply to losses, so take advantage of the 0% tax rate.
Everything you wrote checks out, but don’t forget to consider any potential state taxes. Increasing AGI might also have indirect effects, like reducing benefits or affecting loan qualification.
Keep in mind that the gain from the sale is part of your income for bracket calculations. If you’re close to the 15% threshold, a portion of the gains might fall into that bracket.
Sutton said:
Keep in mind that the gain from the sale is part of your income for bracket calculations. If you’re close to the 15% threshold, a portion of the gains might fall into that bracket.
Thanks for mentioning this. So if I have a $60k income and $40k in LTCG, would $34k be at 0% and the remaining $6k at 15%? Or would all LTCG be taxed at 15% once I cross the threshold?
@Nori
If $60k is your AGI, the MFJ standard deduction of $29k would keep you in the 0% bracket for all gains:
$60k - $29k = $31k + $40k = $71k taxable income.
So, all LTCG would stay at 0%.
@Nori
Only the $6k would be at 15%.
What you’re considering is often called ‘bracket harvesting’—selling stocks to realize gains in lower tax brackets. Just remember the difference between long- and short-term gains, as short-term gains are taxed at ordinary income rates.
Sell what you can tax-free and rebuy to stay invested if desired. It raises your cost basis without the tax hit.
This is known as tax gain harvesting. Sell your LTCG positions to reset your cost basis. You might want to consult a CPA, especially to confirm your expected income for the year and check for any state tax implications.
Yes, just rebuy to raise your cost basis.
Great idea to reset some of your basis at the 0% rate. Depending on the amount, you may only get part of the gain taxed at 0%. State taxes will still apply.
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San said:
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Please don’t give advice on topics you don’t fully understand.
Yes, you’re on the right track.