Talking stocks, trading, and investing in general

[Piobaire]

So here's a question that could easily require some Excel or charts and graphs to answer.

Say you're sitting on a pile of stocks/etfs in your taxable account that's at the long term capital gains rate. Say you have no plans to sell it for 5-10 years. New law is passed that will tax CG as regular income.

Do you sell it, pay the 15% on your current gains, and re-invest to reset your cost basis?

 

[brokencycle]

So here's a question that could easily require some Excel or charts and graphs to answer.

Say you're sitting on a pile of stocks/etfs in your taxable account that's at the long term capital gains rate. Say you have no plans to sell it for 5-10 years. New law is passed that will tax CG as regular income.

Do you sell it, pay the 15% on your current gains, and re-invest to reset your cost basis?

Wouldn't that be a wash sale and not achieve that objective?

 

[Piobaire]

Don't think so. Think that has to do with triggering a capital loss for tax purposes.

 

[jbarwick]

re: crypto - I'm thinking about putting some money in and just expecting that the 3-5 year trend will be generally upwards and beating the market.

However, one thing sticks in my mind - isn't it still risky that the government will regulate/legislate it in some way that crashes it? Or is it that, yes, the US might do something like that but the international markets won't. And/or that even if that's the case, the IRS would come in so heavy handed as to make it untenable for US citizens?

Given there is now a futures ETF trading, I think any worry regarding the US is gone. The interesting thing with Crypto is the wash rule as it doesn't apply. Like, if you are a long-term believer and you own a bunch but it goes down for a loss, sell and rebuy to create a loss against taxable.

So here's a question that could easily require some Excel or charts and graphs to answer.

Say you're sitting on a pile of stocks/etfs in your taxable account that's at the long term capital gains rate. Say you have no plans to sell it for 5-10 years. New law is passed that will tax CG as regular income.

Do you sell it, pay the 15% on your current gains, and re-invest to reset your cost basis?

A law like that would create a lot of turmoil in the markets but could happen. I don't know if I would pay the 15% now given there could be a chance but I really don't know the answer here.

 

[Piobaire]

There is currently mucho talk on the Left about just this so I think it's something worth considering.

 

[UnFacconable]

There is currently mucho talk on the Left about just this so I think it's something worth considering.

I don't think the new increased cap gains will apply to the 15% crowd. As far as I can tell (source), it's just a proposal to increase the current 20+3.8 to 25+3.8.

So, if you expect to remain in the 15% capital gains zone, there may not be any economic incentive to reset your basis now.

If you are in the higher cap gains bracket, it may make sense to take some gains but it also may just make sense to wait for the eventual return of the laffer curve scam. If you have decades left before you need your cash, this might not be the low point in terms of tax rates. Pretty hard to make any long-term pronouncements.

 

[Texasmade]

Piob's a boomer who's close to retirement. He's going to need his tendies soon.

 

[otc]

I don't think the new increased cap gains will apply to the 15% crowd. As far as I can tell (source), it's just a proposal to increase the current 20+3.8 to 25+3.8.

So, if you expect to remain in the 15% capital gains zone, there may not be any economic incentive to reset your basis now.

If you are in the higher cap gains bracket, it may make sense to take some gains but it also may just make sense to wait for the eventual return of the laffer curve scam. If you have decades left before you need your cash, this might not be the low point in terms of tax rates. Pretty hard to make any long-term pronouncements.

I think Piob is talking about a hypothetical situation in which cap gains is set to ordinary income rate (Biden has proposed this, at least at the top IIRC--the house is currently being much more generous).

In that case I would say it is could be worth it, but depends on tax rates. For Piob, maybe not...
Lets assume you are in the 15% capital gains bracket right now and the 24% income bracket. You've got a $1m portfolio that is 50% cost basis (math should be the same for a larger portfolio).

If you liquidate today and rebuy, you are bumping up your tax bracket and going to end up paying 23.8% (since the proceeds puts you in the top bracket). Assuming you pay taxes from your proceeds, this wipes out your cost basis, but lowers your total investment.

10 years later, at 8% return you end up with something like this:

In A your portfolio is 2.16m with 1.66m, taxable. In B you only have 1.9m, but only 1.1m of that is taxable gains.

I haven't really thought through exactly how to account for different draw down schemes, but lets say you decided to liquidate it ALL and move it into bonds since you've had it in a risky market protfolio that was returning 8%.

That's gonna put you in the top tax bracket for sure, lets say that becomes 35%...A leaves you with 1.58m, B leaves you with 1.52...so A wins.

The future tax rate would have to be about 50% for this scheme to be worth it.

But there are a lot of moving pieces here...and how you exit the positions in the future would play a huge role and it all may be very sensitive to tax brackets and level of cost basis. But if you draw down in a way that keeps you in lower tax brackets, it seems even less worth it.

If you could go back in time a few years and only pay 15% on those gains, then it becomes more appealing.

But ultimately I agree with @UnFacconable that it is too long of a time horizon to be making this call. You have no idea where tax rates will be, and it seems crazy to pay a huge upfront tax today to reset your basis.

edit: and yeah, I am not dealing in marginal rates here...that's too complicated, and for Piob probably not as meaningful a distinction...he's never going to get his average tax rate that low.

 

[UnFacconable]

edit: and yeah, I am not dealing in marginal rates here...that's too complicated, and for Piob probably not as meaningful a distinction...he's never going to get his average tax rate that low.

I'm not sure that @Piobaire was talking about a world in which cap gains have moved to ordinary income rates. That's certainly not in the short term cards given how much pushback this far more limited plan has received.

I also disagree that Piob won't have such low rates. He has danced around the issue a bit but if we're just talking about liquidating a few hundo of cap gains now I don't think he's contemplating being in the top bracket during his requirement. It's quite likely that his blended federal tax rate is going to be 25% or less when he is liquidating his taxable accounts. Also, without getting into his personal circumstances too deeply, I don't think he has children to give his excess money to so it's entirely possible some meaningful portion of it ends up going to 501c3s where he will either benefit from the cap gains (in the case of a DAF) or be indifferent (in other charitable giving).

I'm obviously not giving tax advice, nor does @Piobaire really need it, but I suspect when he does the math he will decide there are enough benefits to weathering the storm. I mean, we're talking about a guy who refuses to pay off his student loans, he's obviously not averse to playing the long game.

 

[Piobaire]

I'm talking the Lefty dream of capital gains being treated as ordinary income and this happening in our initial retirement years, early 60s, where we'll have her pension flowing (high five figures) and a stream of dividends from dividend tickers in tax advantaged funds we can harvest at our discretion. My taxable account is basically just SPY and then the play money for tendies.

 

[jcman311]

I'm talking the Lefty dream

He approves. (I got a great closeup from the Ryder Cup)

 

[otc]

I'm talking the Lefty dream of capital gains being treated as ordinary income and this happening in our initial retirement years, early 60s, where we'll have her pension flowing (high five figures) and a stream of dividends from dividend tickers in tax advantaged funds we can harvest at our discretion. My taxable account is basically just SPY and then the play money for tendies.

That's kind of what I figured.

In that case I think my rough estimation suggests it is not beneficial given that you'd be paying today's 23.8% cap gains. Maybe with a more conservative investment profile? I didn't check what happened if you dialed back the 8% return assumption...part of why it doesn't work seems to be that you cut back your principle today and lose the compounding. If you only earned 2% over the next 10 years, maybe you'd come out ahead.

And the lower you can push your retirement tax bracket, the LESS effective it becomes...so if both of you stop taking a salary and can keep the expenses contained, you won't be paying top marginal.

But I already closed that file and I don't wanna rework it...

 

[Piobaire]

The diminishing principle at point X, and what would happen during the holding period until tapping it at point Y, is where I figured the crux was. Thanks for confirming.

 

[Texasmade]

He approves. (I got a great closeup from the Ryder Cup)
View attachment 1690006

Dude's calves are ******* jacked.

 

[Piobaire]

Part at ATH. #JoeBidensAmerica