Dividing capital gains over 2 calendar years

Question

I was reading through some investment brokerage literature and came across this caption

Long-term capital gains & AMT

Realizing a capital gain that's large in comparison to the rest of your income could trigger alternative minimum tax (AMT). If you're planning to sell investments that have large capital gains, talk to a tax advisor about whether it could be a good idea to divide up the sale over 2 calendar years.

https://investor.vanguard.com/investing/taxes/realized-capital-gains

Just to be sure is this to say that folks planning on cashing in on some long held investments may sell say half of them in late December and the other half early January or something? Is this a typical thing folks do to minimize taxes?

Answer 1

Yes. that's exactly what the article implies.

I'd highly suggest that someone in such a situation get a copy of tax software as soon as it comes out, usually near Black Friday (the day after Thanksgiving). Fill it out, with all the solid data you have, and then add the cap gain to see the impact. There may be no need to split the gain, but either way, it would offer a true understanding of the phantom marginal rate one is in. "Phantom Rate" is the actual incremental tax due on the next $100 of income added, whether from work, cap gain, or retirement account withdrawal. It's different from the published tax brackets which ignore the interplay of phaseouts/social security taxation/ other.