Metz Lewis Brodman Must O'Keefe

Metz Lewis Brodman Must O'Keefe

Posted on August 24, 2017

In tax planning and wealth management, professionals focus on managing capital gains tax liability.

Common tools employed in this pursuit include loss harvesting and charitable gifting of appreciated stocks. Similarly, conventional wisdom advocates making gifts of high-basis investments with very low unrealized capital gains to children and grandchildren.

While gifting high-basis investments is tax efficient for larger gifts and for children who are in a similar income tax bracket as the donor, there is a better way for smaller gifts to children or grandchildren currently in a lower tax bracket than the donor. This is due to an oft-overlooked 0% long-term capital gains tax bracket.

The 0% rate was originally phased in for the 2008 tax year under the Jobs Growth and Tax Relief Reconciliation Act of 2003. While it was scheduled to sunset at the end of 2010, the rate was extended two more years by the Tax Relief Unemployment Reauthorization, and Job Creation Act of 2010, then made permanent under the American Taxpayer Relief Act of 2012.

The 0% rate means that gains realized from investments sold by a qualifying taxpayer will not result in capital gains tax.

Of course, not all taxpayers qualify. Taxpayers must be in the 15% or lower tax bracket. That means taxable income (Line 43 of Form 1040) must not exceed $37,950 for single filers and $75,900 for those who are married and file jointly (2017 figures). Remember that taxable income is calculated after subtracting deductions and applying exemptions.

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