This particular tax break has been in existence since 2008 and still most people are not taking advantage of this extraordinary break. If you were in the 15% tax bracket than your long term capital gains tax was 0%. Now of course that changes to if you are in the 12% tax bracket, then your long term capital gains tax is 0%.
Here is how it works. The 12% tax rate extends all the way up to $38,700 for a single person and $77,400 for a married couple filing jointly. It is important to remember here that these numbers represent actual TAXABLE income. So to those number you would still add on the standard deduction in order to figure out how much capital gains you can bring in without paying any taxes.
Here is an example: If we have a married couple, under age 65, with their total income being $84,000 then their taxable income is $60,000, in this scenario they can then bring in $17,400 in capital gains and pay $0 taxes on that gain. Many people, I’m afraid are not using this break because they have heard that you cannot buy back a stock within 31 days or you lose your tax break. There is a 31 day rule, it is called a “wash sale”, but it only applies to selling stocks at a loss. If you sustain a loss than you cannot buy back the stock within the 31 days without losing the opportunity to show the loss. No such rule exists for when selling at a profit. You can sell the stock one day and buy it back the very next day. The end result is you still own the stock you wanted to own but you just locked in all that gain tax free.
The only caveat here is that the extra income could make part or more of your social security benefit taxable for that year. Therefore it is best to work through the numbers with someone who has the software to produce a “what if” scenario to find the exact most beneficial amount. If you need help with this computation feel free to contact my office and we will help you out with it.