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!
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!
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– Contributions to a health savings account fur future expenses result in tax-free growth and avoid capital gains when withdrawn to pay for medical expenses.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.