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Reduce or Eliminate Your Capital Gains

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The capital gains rates have changed in 2018 for the first time in a long time.  Rates have been lowered and there are plenty of ways to avoid paying this tax!

New Rates

First let’s take a quick look at the new rates because I many of you will find them even lower than in recent years!

  • 0% applies to married filing joint (MFJ) taxpayers with income up to $77,200.  If you are single, the earnings limitation is $38,600.
  • 15% for MFJ taxpayers with income between $77,201 – $479,000.  Single income is $38,601 – $425,800.
  • 20% applies to MFJ incomes in excess of $479,000 and singles in excess of $425,800.
  • Additional 3.8% – the net investment tax is added to the above for couples with income over $250,000 and single filers over $200,000.

This effectively means a married couple can have total income of $101,200 after considering the $24,000 standard deduction and still qualify for a 0% capital gains rate!

Tax Tips

Next we want to review some tax tips to take advantage of these new rates:

  • Sell and Increase Basis – Consider taking advantage of the new capital gains rates by selling enough stocks to still apply for the 0% rate and then reinvest in the same stocks to obtain an increased basis.
  • Gift Appreciated Stock to Your Family – Give up to $15,000 to your children or grandchildren.  This will result in them taking your lower basis but when then sell the stock they most likely qualify for the 0% capital gain tax rate.
  • Pay for Family Member’s College – fund a 529 plan with stocks and they not only grow tax-free but any withdrawals use for education expenses avoid capital gains.
  • Fund Your Retirement Healthcare Expenses – Contributions to a health savings account fur future expenses result in tax-free growth and avoid capital gains when withdrawn to pay for medical expenses.
  • Give to Charity – Donate appreciated securities to a donor-advised fund to get the tax deduction for the fair market value of the stock and pay no capital gains tax.
  • Buy a New Home – Exclusion of capital gains of $500,000 MFJ and $250,000 for others still apply for you or primary residence.
  • 1031 Exchange – Use this strategy to defer capital gains for real estate assets. Other uses have been eliminated in 2018.
  • Die – Ok admittedly this does not sound like a great option but any securities held until you die are passed on to your heirs at the current fair market value and no capital gains tax is avoided.

1 Comment

  1. Kris Miller says:

    One question under “Die” above: …”any securities held until you die are passed onto your heirs at the current fair market value and no capital gains tax is avoided.” Did you mean either “and no capital gains tax is paid? Or (eliminate “no”) and state that “capital gains tax is avoided.” ?? Just wasn’t clear. thx. Kris Miller

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