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I didn´t have much income this year, so I was thinking of selling any stock with capital gains. The purpose of this sell is to take advantage of the standard deduction and the 0% tax on capital gains income less than $38,600.

Is my approach correct? Any other suggestions or things I should consider?

Thanks,

P.S. The total stock gains I should aim to is $12,000 + $38,600. Correct?

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This question has an open bounty worth +200 reputation from Peretz ending in 18 hours.

Looking for an answer drawing from credible and/or official sources.

I expect an answer that I can apply this year (2018) and its backed up by IRS or other useful references.

up vote 4 down vote

As of 2018, capital gains rates are no longer tied directly to income tax brackets. The following includes the tax income and LT cap gain rates for individuals:

Income               Income Tax   STCG   LTCG
$0 to $9,525             10%       10%    0%
$9,526 to $38,600        12%       12%    0%
$38,601 to $38,700       12%       12%    15%
$38,701 to $82,500       22%       22%    15%
etc.

As you can see, individuals with total income up to $38,600 are in the 0% capital gains bracket, while those who earn just a bit more ($38,601 - $38,700) are in the 15% capital gains bracket.

Short term capital gains are from assets held less than one year. They are taxed as ordinary income.

Qualified dividends are taxed at the same rate as long-term capital gains.

Here's a Capital Gains calculator:

https://smartasset.com/investing/capital-gains-tax-calculator#W71pjFKRdD

If you plug in numbers that add up to a $50,600 LT cap gain, it shows that the tax due is zero.

Disclaimer: Consult with a qualified accountant

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  • It is very interesting that there is a small window of income level where the short term capital gains rate is less than the long term rate. – Ben Miller Dec 6 at 17:22
  • +1, but your answer would be bounty-worthy if it included a reference to a source and addressed the effect that the standard deduction has, explicitly answering the OP's question about how much in capital gains he should shoot for. – Ben Miller Dec 6 at 17:24
  • Thanks for the edit. I couldn't figure out how to line up the columns but I see now how you did it. – Bob Baerker Dec 6 at 17:48
  • I am a bit confused with the different brackets for the income and capital gains. What happens when you have income and capital gains that exceed the standard deduction? Where do we apply the standard deduction? Let's say a concrete example. I made 30k in income, and I sell stock with 50k in long-term gains. Can I choose which bracket to apply the standard deduction? (it would be better to apply it to the capital gains bracket since you would save 15% instead of 12%) – Peretz 18 hours ago
  • 1
    I haven't looked at the new forms but I assume that the process is the same as in prior years. Capital gains are calculated on Schedule D and then entered into the 1040 form which is where the the standard deduction is also claimed. You don't get to pick where to apply it. You can't apply it on one form and save 15% versus applying it on another, saving 12%. Taxation of LTCG and income is decoupled as of this year with different rate schedules. Google for the 2018 forms or speak to an accountant. – Bob Baerker 15 hours ago

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