A few clients have been pleasantly surprised to find their long term capital gains were not taxed at all.
That happens when the total taxable income — after deductions and exemptions — is low enough to not be taxed at more than 15 percent.
The American Taxpayer Relief Act is the source of this special tax benefit. And it also works for dividends that are “qualified” (paid by an operating company out of profits-subject to some special definitions).
ATRA permanently extended the 0 percent tax rate on long term capital gains for folks with taxable income that is low enough. Single taxpayers in 2014 with taxable income of less than $36,900 and joint return taxpayers with taxable income of less than $73,800 qualify for this benefit.
So, if a couple that files a joint return expects to have taxable income (not gross income) of about $50,000 in 2014, they could realize long term capital gains of about $23,800 and there would be no tax on the capital gains (or qualified dividends).
It does not get much better than zero tax rate. If you might qualify, take a look at what you have you might sell at a profit.
Suppose you have a stock or other capital asset that has gone down in value and you would recognize a capital loss if it was sold, take a look at that also. Capital losses are deductible against both short term and long term capital gains.
I personally favor the “buy and hold” way of owning stocks. The values will always go both up and down, but in the long run most big company stocks will go up. Stocks hedge against the hurt of inflation. But you could consider looking at the possible zero tax rate on long term capital gains if your taxable income is low enough.
If you sell a stock at a loss and buy the identical stock within 30 days of the sale, the “wash loss” rule prevents you from deducting that loss. However, that is only for losses. If you sell at a profit (which is taxed at zero) you can buy back the identical stock without any penalty. That would increase your tax basis in the stock and reduce your future gain when you sell that stock in the years to come.
Take a look at the tax computation details of your 2013 return. You may have been getting this benefit and just did not realize how the computation works.
Did you hear? “You are never as old as you are going to get.”
John Bullis is a certified public accountant, personal financial specialist and certified senior adviser who has served Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs.