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Author: csapidus Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 121061  
Subject: Year-end and 0% Capital Gains, Basic Questions Date: 12/23/2013 9:51 PM
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My apologies if this is well-trodden territory, and for the extremely basic nature. Just want to make sure I'm fully understanding this.

Hypotheticals for single unemployed 30-yo US taxpayer, 2013:

earned income: $0
1099-DIV/INT income: $11,250

(1) If I'm understanding the 0% scenario correctly, this person should absolutely try to harvest $25,000 in long-term capital gains (the $36,250 limit - $11,250 above). From a Federal taxation perspective anyway; let's ignore state-specific issues.

(2) Is the $6,100 standard deduction in any way advantageous? In other words, can it be used to harvest an additional $6,100 in LT gains (either directly, or indirectly through reducing the 1099 income), or can it only be applied to earned income?

(3) Is there a wash rule application to watch out for here? There's obviously no loss involved in the harvest, but it does serve to eliminate future taxation of the $25,000. So, if one were to sell, say, AAPL on Dec 27 and then repurchase AAPL on Jan 2 - essentially solely to reduce their basis - would this be disallowed?

Thanks for any clarification!
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Author: ptheland Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119755 of 121061
Subject: Re: Year-end and 0% Capital Gains, Basic Questio Date: 12/24/2013 1:49 PM
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My apologies if this is well-trodden territory, and for the extremely basic nature. Just want to make sure I'm fully understanding this.

Yep, it's well trodden. But that's handy as we just have to keep in the ruts in the road.

(1) If I'm understanding the 0% scenario correctly, this person should absolutely try to harvest $25,000 in long-term capital gains (the $36,250 limit - $11,250 above). From a Federal taxation perspective anyway; let's ignore state-specific issues.

Yep. That would be effectively tax-free gains. And yes, most states would have some tax on this hypothetical, so that's also a consideration.

(2) Is the $6,100 standard deduction in any way advantageous?

Yes, the standard deduction would reduce taxable income, allowing more LTCG at 0%.

(3) Is there a wash rule application to watch out for here?

Nope. No wash rules for gains, only losses.

--Peter

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Author: aj485 Big gold star, 5000 posts Feste Award Nominee! Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119756 of 121061
Subject: Re: Year-end and 0% Capital Gains, Basic Questio Date: 12/24/2013 3:11 PM
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Hypotheticals for single unemployed 30-yo US taxpayer, 2013:

earned income: $0
1099-DIV/INT income: $11,250


If there were any unemployment benefits received, there would likely also be income from a 1099-G that needs to be accounted for.

(1) If I'm understanding the 0% scenario correctly, this person should absolutely try to harvest $25,000 in long-term capital gains (the $36,250 limit - $11,250 above). From a Federal taxation perspective anyway;

If the taxpayer has a traditional IRA, converting some/all of it to a Roth IRA may actually be a better way to use the tax benefit, since long term capital gains are (currently) taxed at lower rates than the ordinary income rates that IRA conversions are taxed at.

AJ

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Author: stockmover Big red star, 1000 posts Old School Fool CAPS All Star Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119757 of 121061
Subject: Re: Year-end and 0% Capital Gains, Basic Questio Date: 12/25/2013 2:27 AM
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If the taxpayer has a traditional IRA, converting some/all of it to a Roth IRA may actually be a better way to use the tax benefit, since long term capital gains are (currently) taxed at lower rates than the ordinary income rates that IRA conversions are taxed at.

I'm not so sure? Its my understanding that a TIRA to Roth conversion amount will be taxed as ordinary income and will not fall into the LTCG "bucket". Therefore, the conversion amount will not apply to the 0% LTGC calculation.

Pro's ~ any comments?

Rich
Arizona

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Author: csapidus Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 119758 of 121061
Subject: Re: Year-end and 0% Capital Gains, Basic Questio Date: 12/26/2013 1:45 PM
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I'm not so sure? Its my understanding that a TIRA to Roth conversion amount will be taxed as ordinary income and will not fall into the LTCG "bucket". Therefore, the conversion amount will not apply to the 0% LTGC calculation.

This is my understanding as well - however, in my hypothetical scenario, the standard deduction would then still be applicable during a rollover for this individual. So, helpful advice for consideration.

(And my sincere thanks to all chiming in on this.)

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