Quick Hit - Cap Gain or Cap Loss Harvest

Matt

Administrator
Staff member
12/31 is the deadline for taxable events for 2015. If you were to sell appreciated assets held within taxable accounts you'd create a capital gain, and if you sell depreciated assets you create a capital loss.

Which to do?
Some might do both, as they can be netted out, but you could also approach this as an 'either/or' decision.

Cap Gain Harvesting Candidate
A good candidate for this would be someone in (or near to) the 15% income tax bracket:

Add standard deduction and dependant to the top tier of the 15% bracket:

Standard deduction is $6300 for single filers, $12,600 for joint filers.
Dependent Deduction is $4000 for each person you can claim as a dependent (you count as a personal exemption)
  • $37,450 15% for single filers
  • $74,900 15% for married filing jointly filers
Example
For a married couple, add $12,600+$4,000+$4000 for $20,600 to $74,900 = $95,500 this is your cap.

If you deduct your taxable income from the $95,500 and there is a positive balance, you could capital gain harvest at 0% tax rate. EG if that couple earned $60K in salary and had $5000 in interest and dividends, they would have a taxable income of $65000. They could realize $30,500 of capital gains without paying any taxes.

Cap Loss Harvesting Candidate
If you are outside of the 15% tax opportunity described above, your position may favor a capital loss harvest. Your losses will first be used to net out any capital gains, and then can be used for $3,000 per year to deduct ordinary income (particularly useful for higher tax brackets). Capital losses can be carried forward for future years, so if you were to harvest $10,000 this year you could reduce your taxable income by $3,000 for 2015, 2016, 2017 and $1K in 2018, assuming you didn't also have realized capital gains.

Note that another strategy, akin to the Capital Gain harvest is the partial roth rollover. This can be used to move money within a tax bracket, but is best used when tax brackets are changing, IE when you are currently in a bracket that is below where you might be in the future.
 
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