Thread by @MikeSherraden

Intrested in paying less taxes in the future?

Done right you can even pay 0.

This will be pretty long but gets into the details of how Long Term Capital Gains can benefit you.

If you want to learn more about Taxes, Real estate, or investing this is for you.💰💸

A thread. ⬇⬇

Long Term Capital Gains. (LTCG) starts with knowing what tax bracket you are in.

LTCG is a tax on assets such as a stock or property that you have owned for over one year

This tax is applied to appreciation of asset. (Primary residences 2 years)

For stocks this would be applied to stocks held in a Brokerage. Or a Non retirement account.  

There are plenty of broker options.

Many have recently started offering free trading to compete and add investors.

It’s important to note you only pay Long or short term capital gains at the time of sale.

Short term capital gains (Held less than one year) are taxed as ordinary income whatever your normal tax bracket is.

Long term losses can also be deducted from your long term capital gains

Continued- If there are only losses the capital losses are deducted from your regular income.

LTCG are taxed at a rate of 0%, 15%, and 20% Depending on how much money you earn in income is where you would be on the LTCG tax rate.  I have attached a Chart

This is where you can reduce your tax.

In retirement (no working income) If you are married filling joinlty you can withdrawl up to $78,750 per year & pay 0% on taxes.

This can obviously change in the future.

But if you are in the 22% bracket or higher paying 15% is better.

You can also decide to pull your money from one investment and then put it right back in the same thing to trigger the LTCG in a beneficial year..

You can only do this if you are not taking a loss.

You must wait 30 days to invest in the same stock or fund if a loss occurred.

It's important to note that LTCG you can have each year and still pay 0%

This is not the total amount you can withdrawl. LTCG applies to the change in price over time.

Meaning what you invested initially is not applied to LTCG tax.

Here is an example-

A single person who earns $33K per year.  They have $12K in stocks that have been held over a year. 5K of that Money was appreciation of stocks or LTCG.

If you pull all 12K out of your account and since your total income + LTCG was 38K.  You pay 0% LTCG tax on the 5K profit

You can do this each year if you have more money invested long term.

You can deduct up to 3K (half if married so 3k between you) per year in loses from your income.

This can be done for as many years as needed to reach your total losses (15k loss= 5 years at 3K max loss)

When buying the same stock at different times you have to pick your basis for accounting.

Most go with First in first out but there are other methods too.

Basically if you buy 100 shares at $10 and then 100 more at $12 the price and date when selling your first 100 shares would be from the $10 price, and then the $12 date and price next. (you can sell however many you want)

It should also be noted that collectables such as art, antiques, jewelry, precious metals and stamp collections are always taxed at 28% capital gains.

No matter what income bracket you are in.

Your primary residence that you occupy when sold is excluded for capital gains up to 500K for married couples and 250K for single filers.

This is a huge deduction and helps make homeownership lucrative.

More below.

To qualify you must have spent 2 of the last 5 years living in the home (it doesn’t have to be all at once)

But you cannot deduct capital losses if the value goes down for personal property like you can for stocks.

This is also great for rental properties 👇

You can rent your property out for a number of years. When you are ready to sell do not renew your lease with the renters and move back in.

If you live there for 2 years as your primary residence you do not owe LTCG.

The key is for the rental property to be somewhere you would be willing to live for 2 years.

It’s also of note that high income earners (over 200K single or 250K married) you will have to pay an additional 3.8% on investment income this includes capital gains.

Hope you guys found this helpful!

Welcome aboard to all of the new followers.