I did not have a job for part of 2021, so my total income is temporarily well within the federal 0% capital gains tax bracket.
I have a long-held position in VSMGX (Vanguard LifeStrategy Moderate Growth) which has accumulated over $10k in long term capital gains, and I would like to liquidate some or all of it to buy separate stock and bond positions that better fit my desired AA.
Normally this would be a slam dunk decision, but I live in a state that taxes capital gains at ordinary income tax rates, which would end up being close to 6%.
I've read elsewhere that 'state taxes' are a reason not to tax-gain harvest, but is there a threshold that needs to be crossed (capital gain amount, state tax rate, etc) before tax-gain harvesting stops making sense? Or does it just never make sense when state capital gains taxes are involved?
How much state tax defeats tax-gain harvesting?
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Re: How much state tax defeats tax-gain harvesting?
I think getting your portfolio into your desired AA is more important than a one time $600 tax hit.BrokerageZelda wrote: ↑Thu Sep 23, 2021 1:40 pm I did not have a job for part of 2021, so my total income is temporarily well within the federal 0% capital gains tax bracket.
I have a long-held position in VSMGX (Vanguard LifeStrategy Moderate Growth) which has accumulated over $10k in long term capital gains, and I would like to liquidate some or all of it to buy separate stock and bond positions that better fit my desired AA.
Normally this would be a slam dunk decision, but I live in a state that taxes capital gains at ordinary income tax rates, which would end up being close to 6%.
I've read elsewhere that 'state taxes' are a reason not to tax-gain harvest, but is there a threshold that needs to be crossed (capital gain amount, state tax rate, etc) before tax-gain harvesting stops making sense? Or does it just never make sense when state capital gains taxes are involved?
You could also leave VSMGX and use new contributions to get to your desired AA.
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Re: How much state tax defeats tax-gain harvesting?
If you're never going to move away from the state in question, then it would appear the 6% is unavoidable (at least while you're alive).
Do you have any plans to relocate to a low or no tax state?
Regards,
Do you have any plans to relocate to a low or no tax state?
Regards,
If liberty means anything at all it means the right to tell people what they do not want to hear. -George Orwell
Re: How much state tax defeats tax-gain harvesting?
6% is still really good.
You don’t have many options to go lower than 6%:
1) move to a lower tax state
2) do nothing and defer the gains until you move to a lower tax state and wait for another opportunity like this past year where you did not have income.
You don’t have many options to go lower than 6%:
1) move to a lower tax state
2) do nothing and defer the gains until you move to a lower tax state and wait for another opportunity like this past year where you did not have income.
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Re: How much state tax defeats tax-gain harvesting?
If you need to better align your AA and have an opportunity to harvest a gain at 0% federal then I would think now is the time, 6% from the state is just something you'll have to stomach. 6% is a lot better than 21% (15 + 6) later on down the line?
Re: How much state tax defeats tax-gain harvesting?
This!retired@50 wrote: ↑Thu Sep 23, 2021 1:45 pm If you're never going to move away from the state in question, then it would appear the 6% is unavoidable (at least while you're alive).
Do you have any plans to relocate to a low or no tax state?
Regards,
Tax Gain and Tax Loss Harvesting are simply changing the timing of when you pay the taxes.
Unless you are going to move to a state with lower tax rates, state tax is basically irrelevant for this decision (you'll pay the 6% another day anyway).
But you can take advantage of avoiding the 15% federal rate, which you may not have that opportunity again in the future.
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Re: How much state tax defeats tax-gain harvesting?
I don't currently have any plans to relocate to another state (though life has a way of making plans for you sometimes).retired@50 wrote: ↑Thu Sep 23, 2021 1:45 pm If you're never going to move away from the state in question, then it would appear the 6% is unavoidable (at least while you're alive).
Do you have any plans to relocate to a low or no tax state?
Regards,
Thanks for the input everyone - if I'm going to do anything I'll probably do it at the end of the year, so I'll have a couple months to decide. Leaning more toward taking the tax hit now than I was before I asked the question.