capital gain harvesting

whysocomplicated

I have an opportunity to sell mutual funds to harvest gains due to a lower income this year. Selling 90k of stock will give me approx 30k of gains at 0%. I plan to reinvest the gain back into the fund to reset the cost basis on those shares since I never take any distributions. What are any unexpected consequences I may encounter?

MeganC

Hi whysocomplicated,

Selling mutual funds to harvest gains during a lower income year can have some benefits, but there are considerations to keep in mind. Realizing $30k in gains could increase your taxable income, so it’s important to ensure this doesn’t push you into a higher tax bracket where some of the gains may be taxed at 15% instead of 0%. Additionally, some states tax capital gains even if there is no federal tax owed, so you might want to check your state’s tax rules.

If you reinvest the proceeds back into the same fund, the transaction generally wouldn’t be subject to wash sale rules since those apply to losses. It’s also worth noting that the additional realized gains could impact things like Medicare premiums or eligibility for certain tax credits.

For more information on how capital gains are taxed and reported, you can refer to IRS Publication 550, https://www.irs.gov/forms-pubs/about-publication-550 .