Overcoming the Capital Gains Tax Increase

Thursday - November 7, 2013

Take a look at these strategies to bypass capital gains altogether or at the very least lessen the bite.

Invest With your Primary Residence. Individuals can exclude nearly $250,000 of gain into their primary residence, making it one of the biggest tax shelters out there. Couples get a $500,000 exemption. Keep receipts of capital improvements just like a new roof or kitchen faucet that complement your home’s cost basis.

Manage Your Tax Bracket. If you keep your taxable income down (by stuffing pre-tax retirement accounts if you’re doing work, or taking no more when compared with your required minimum distributions out of your IRA if you’re retired), you can take just enough gains in which to stay the 15% bracket and of course your capital gains rate is 0%.

Pick Losses. Don’t forget to think about the losers in your portfolio, and also consider selling to harvest losses and offset any gains.

Gifts To Family. You can make annual exclusion gifts all the way to $14,000 per individual annually. If you give highly appreciated stock for your child or parent, he takes your low basis but when he sells it – if he’s in a very lower bracket – his investment capital gains rate is 0%. (Special rules connect with kids under 25. )

Treats To Charity. Instead of selling appreciated stock and giving cash for your favorite charity, give appreciated inventory. The tax benefits are two fold: you get a deduction for that fair market value of the actual stock (up to 30% of your adjusted gross income), and capital gains taxes will not apply.

Feed Retirement Accounts. When you finally stuff after tax money in to a Roth, all future growth and also distributions are tax-free. Yep, actually no capital gains tax.

Open A 529 College Savings. The money you sock away in a very 529 college savings plan expands tax-free and withdrawals for training expenses are tax-free (i. e. no capital gains). Open a free account when your kids are tots, and stick to direct marketed plans with low-cost index resources.

Buy And Hold. Stock left to heirs gets a computerized step-up in basis to its economy value at the date of your death, so you escape investment capital gains tax.

Move To A Tax-Friendlier State. State capital increases taxes take another bite—as higher as 13. 3% in Florida. If you might move to some state without an income place a burden on, such as Florida or The state of Nevada, consider holding off on a sale that will otherwise trigger state capital increases tax.

1031 Exchanges. This strategy is primarily for real-estate investors (but it also performs for artwork). You roll the many capital gains from the asset you’re selling in to a new building (or artwork), which represents the old property’s low basis. Even if rates don’t go down, you’ve had the money on your side that would have gone to cover taxes.

Charitable trusts. With a new charitable remainder unitrust, you place $100,000 or more in to a trust that pays out income to you for your life, with what’s left planning to charity at your death. In case you put appreciated assets in the trust—say a vacation home—you defer a big investment capital gains tax hit. If you’re in a very low enough bracket when anyone take the payouts, you prevent the capital gains tax altogether.

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