I am currently looking at liquidating some of my investments and trying to decide which ones to sell, to cover some cash expenditures I will have. For the matter of this question, let's say I need $10,000.
I have already decided that I will be selling some stock lots worth $5,000 that incurred capital gains of $3000. But I will need to sell additional stock lots to meet my cash requirement. I have the option of selling an additional lot worth $5000 that incurred capital gains of $3000 or selling a lot worth $5000 that incurred capital losses worth $3000.
As far as I understand, the capital losses will be deducted from my capital gains for determining capital gains taxes and I will only have to pay the effective difference. However, if the additional stock I sold incurred capital gains too, and I kept the stock that incurred losses until the next tax year, I am able to sell that stock for a loss and deduct up to $3000 in losses from my regular income tax, which are generally much higher than capital gains taxes.
Let's assume we are in the highest capital gains and income tax brackets (20% and 37% as of 2018).
If I sell a lot with $3000 gains and a lot with $3000 loss, I will incur no capital gains taxes this year. But if I wanted to sell the other $5000 lot that incurred $3000 gains next year, assuming no additional gains/losses and changes in tax bracket, I will have to pay $600 capital gains taxes in total to liquidate all the stock worth $15,000.
If I sell both lots with gains this year for a total gain of $6000 in capital gains, I will owe $1200 in capital gains taxes. But if I then sell the $5000 lot that incurred $3000 in losses next year (again, assuming no additional changes), I will be able to deduct these $3000 from my regular income, on which I am paying 37% taxes, reducing my tax liability that year by $1110. This will reduce my total tax liability for selling $15,000 worth of stock to effectively $90.
Do I understand this correctly, or am I missing something?
Is it generally advisable to "cluster" sales of lots that incurred gains and losses (up to $3000) annually?