How rich and smart investors live: Check out these strategies to bypass capital gains altogether or at least lessen the bite. Invest In Your Primary Residence. Individuals can exclude up to $250,000 of gain in their primary residence, making it one of the greatest tax shelters out there. Married couples get a $500,000 exclusion. Keep receipts of capital improvements like a new roof or kitchen faucet that add to 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 working, or taking no more than your required minimum distributions from your IRA if you’re retired), you can take just enough gains to stay in the 15% bracket and then your capital gains rate is 0%. Harvest Losses. Don’t forget to look at the losers in your portfolio, and consider selling to harvest losses and offset any gains. “People are always going to have assets in their portfolio that have losses,” says Bigge. Gifts To Family Members. You can make annual exclusion gifts of up to $14,000 per individual each year. If you give highly appreciated stock to your child or parent, he takes your low basis but when he sells it – if he’s in a lower bracket – his capital gains rate is 0%. (Special rules apply to kids under 25.) Gifts To Charity. Instead of selling appreciated stock and giving cash to your favorite charity, give appreciated stock. The tax benefits are twofold: you get a deduction for the fair market value of the stock (up to 30% of your adjusted gross income), and capital gains taxes do not apply. Feed Retirement Accounts. Once you stuff after tax money into a Roth, all future growth and distributions are tax-free. Yep, that means no capital gains tax. Open A 529 College Savings Account. The money you sock away in a 529 college savings plan grows tax-free and withdrawals for education expenses are tax-free (i.e. no capital gains). Open an account when your kids are tots, and stick to direct sold plans with low-cost index funds. Buy And Hold. Stock left to heirs gets an automatic step-up in basis to its current market value at the date of your death, so you escape capital gains tax. Move To A Tax-Friendlier State. State capital gains taxes take another bite—as high as 13.3% in California. If you might move to a state without an income tax, such as Florida or Nevada, consider holding off on a sale that would otherwise trigger state capital gains tax. 1031 Exchanges. This strategy is primarily for real estate investors (but it also works for artwork). You roll all the capital gains from the asset you’re selling into a new building (or artwork), which takes on the old property’s low basis. Even if rates don’t go down, you’ve had the money working for you that would have gone to pay taxes. Charitable trusts. With a charitable remainder unitrust, y ou put $100,000 or more into a trust that pays out income to you for your life, with what’s left going to charity at your death. If you put appreciated assets in the trust—say a vacation home—you defer a big capital gains tax hit. If you’re in a low enough bracket when you take the payouts, you avoid the capital gains tax altogether.
Posted on: Sun, 20 Oct 2013 09:44:10 +0000
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