MoneyDo: Evaluate capital gains or losses for the year.


This week’s MoneyDo takes a look at another key component of wealth management – evaluating gains and losses. Don’t let the crush of have-to’s and shopping lists crowd out this critical “MoneyDo.”

There are two good reasons for reviewing your taxable investment accounts to evaluate realizing gains or losses this time of year.

  • Consider tax implications as you get ready to file
  • Review the risk you are taking in your portfolio and consider adjustments, if needed.

The stock market had a good year this year, which may leave a lot of taxpayers with larger unrealized gains in their portfolios.  Some considerations before realizing gains:

  • Long term capital gain tax rates are different than ordinary rates. Depending on your situation they may be 0%, 15%, 20%, 23.8%.
    1. If you are a married individual with taxable income lower than $75,900 your long term capital gains for federal may be taxed at 0%. For single individuals that amount is $37,950.  Once your income starts to exceed that, your capital gains over that threshold would start to be taxed at 15% and increasing as income gets higher.
  • If also on Medicare, be aware of increasing your income too much and subjecting yourself at a later date a higher monthly premium.
  • Also look at rebalancing your portfolio if you are to realize gains. This means looking at your mix of assets and if they are in line with your risk tolerance.
  • If you are realizing short term gains your rates would be higher and mirror that of your current ordinary income rates.

Things to consider before realizing losses:

  • Do you already have suspended realized losses on your tax return? Therefore you may not receive additional tax savings by realizing more.
  • There are wash sale rules which would not allow you to realize a loss if you would buy back the security immediately following the sale. You would need to wait 31 days before buying the security back.
  • Would you leave the funds in cash after selling a realizing a loss? Or reinvest in a different type of security.
  • You can only take a tax deduction for $3,000 per year of net capital losses, the remaining gets carried forward to future years.
    1. Your losses can offset other capital gains, to the extend you have gains. Then with the remaining losses you are limited to the $3,000 deduction.

If you’re worried about the tax implication of realizing some gains/losses be sure to review you projected 2017 income before selling.