I wanted to ask this forum’s thoughts on my plan to sell off investments in my taxable brokerage account. My goal is to avoid paying higher long-term capital gain taxes later. I’m in grad school and haven’t worked much this year, so my income will be around $10k. Is it smart to sell and then buy back some of my stocks and ETFs that I’ve held for a while in my taxable account? This would reset my cost basis, which could help with taxes in the future. I noticed that the long-term capital gain rate for 2024 is 0% up to $48,350. Is there any risk to this idea that I’m missing? Thanks for any advice!
Yup - that’s a good idea.
This strategy is called tax gain harvesting. It can work well. You might also want to look into Roth conversions if you have any pre-tax accounts.
Yes, this is called ‘Low-Income Loopback’.
Milan said:
Yes, this is called ‘Low-Income Loopback’.
Can someone explain how this works? I have around $35,000 in investments in a taxable account as well. Why is it smart to sell and rebuy them? I’m in my senior year of college and my income will also be under $10k this year.
@Mai
The idea is to harvest the capital gains and avoid paying taxes on them because your income puts you in the 0% capital gains tax bracket. Then, you can buy back the same stocks at the current price and lock in a higher cost basis. It’s essentially free money!
@Tristan
So this only applies to long-term capital gains, right?
Mai said:
@Tristan
So this only applies to long-term capital gains, right?
Yes, that’s right. It’s all about long-term gains.
Make sure you have a margin account so you can sell and rebuy the shares immediately. If you don’t have one, it’s easy to apply. You should do it if you’re serious about this strategy.
Vale said:
Make sure you have a margin account so you can sell and rebuy the shares immediately. If you don’t have one, it’s easy to apply. You should do it if you’re serious about this strategy.
Sorry, could you explain what a margin account is and how it helps here? I don’t think I have one, just a regular taxable brokerage account at Vanguard. Most of my investments are in index-fund ETFs.
@Heath
If you don’t have a margin account, you’ll have to wait at least a day to buy back your shares after selling them. That could be a problem if the price goes up while you’re waiting. A margin account lets you sell and buy back right away, which can be helpful. Also, margin accounts let you borrow money to buy more shares, though I doubt you’ll use that feature for long-term investing.
@Vale
Thanks for the explanation! But is waiting a day really that big of an issue? If the market goes up a bit, I’m holding for the long term anyway, so I think the difference should be small. I’m not planning to cash out anytime soon.
@Heath
It probably won’t be a big deal, but you never know. Sometimes the market can jump 1-2% in a day. The point is, applying for a margin account is quick and easy. You might need to sell and buy back quickly in the future, so it’s good to have the option.
@Vale
Got it, thanks!
I did the same thing when I was in grad school with very little income, and it worked out well.
Yes, it’s a solid idea. Just be careful with your timing.
You mentioned that the long-term capital gain rate for 2024 is 0% up to $48,350… Actually, it’s $47,025 for 2024. But it’s a small difference. Don’t forget the standard deduction for a single person is $14,600 in 2024. So with your $10,000 in wages, you’d have over $50,000 in tax-free capital gains. Bottom line: yes, this is a great idea.
Double-check your math to make sure you stay under the threshold. The risk is that you might buy back when the price is higher, but saving on taxes is a solid idea, as long as you also consider state taxes. Selling now can be better than waiting, especially if taxes could go up in the future. I agree with your approach. Just remember that you can always repurchase the same investments without worrying about a wash sale, since you’re not selling at a loss. Also, you could start a Roth IRA with any income you have, which could further reduce your future taxes.
Yes, do it! You could save a lot on taxes.
This doesn’t work in my country, but you should definitely try it.