The more you learn about personal finance, the more complicated your questions are likely to get. But never fear: Hosts Robert Brokamp and Alison Southwick named their podcast Motley Fool Answers for a reason, and the Oct. 29 episode -- the monthly mailbag show -- the co hosts will tackle a whole bunch of money conundrums with a bit of help from Motley Fool Wealth Management Director of Financial Planning Megan Brinsfield, CPA, CFP, and all-around fine human being.
In this segment, they pick up a query from recent retiree Ralph, who expects his income this year will be below the $78,750 level above which he'd have to pay capital gains on investment profits. So should he just sell all his stock now and skip the taxes? Alas, Ralph, that's not quite how it works, as the team explains.
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This video was recorded on Oct. 29, 2019.
Alison Southwick: The next question comes from Ralph. "I have just retired and read that if my taxable income for any given year is $75,900 or less, then long-term capital gains taxes are not applicable. Does it make sense to liquidate all of my stock holdings and use the proceeds to live off of and put any excess cash into savings or back into the market starting a new tax basis?"
Robert Brokamp: Well, I wouldn't say any given year, but certainly in 2019 if your adjusted gross income is below $78,750, but basically -- and he's married -- half that if you're single, if your adjusted gross income is below that and you have long-term capital gains, you'll pay a tax rate of zero on that. But you shouldn't sell all your stocks because as you sell those stocks that will add to your adjusted gross income and at some point you'll get over that $78,750 or whatever threshold it is.
It certainly makes sense to do that up till that point. You sell the stock. You owe no taxes on the capital gains. You can buy it back immediately. There's no 30-day waiting rule like there is for losses and you set a new cost basis. It's a perfectly fine idea. Just don't do it all and then all of a sudden you have a $400,000 income and then you will pay long-term capital gains on most of those.
Megan Brinsfield: I have the threshold up in front of me. For married, filing jointly it's $78,750 of taxable income, which means to get to your gross income, you can add back your standard deductions.
Brokamp: So the standard deduction for married filing jointly for 2019 is over $24,000.
Brinsfield: Yes, $24,400.
Brokamp: So you could have a gross income of $100,000, take those deductions, and still have some of your capital gains. And also your qualified dividends, as well.
Brinsfield: And the other cool thing is if you itemize deductions because you have a house, or you give to charity, you can back off even more than that standard deduction, so you could have even more than $100,000 of gross income and still get to the right taxable income number. The magic one.
Brokamp: The magic one.