For 2018, If I liquidate a stock held for five years that is worth $500,000 (basis of $50,000), must I include the amount of the capital gain in my income for purposes of determining my capital gain rate? For example, married filing jointly income this year will be $50,000, putting me in the 0 percent capital gain bracket. Will I owe 0 percent, or will I have to add $450,000 to $50,000 to determine the capital gain rate?
Your adjusted gross income for the year includes all income you recognize in that year, so the gain will move you to the highest rate. There are some things you can do to try to offset the ensuring tax burden. The IRS will let you net any long-term capital losses you have in the year against the gains. So, if you have some losers in your portfolio, this would be a good time to sell. In addition, if the stock you owned paid dividends that you reinvested, that amount can be added to your basis to reduce the gain.
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Answered by: Judith Herron, CPA, is with Markovitz Dugan & Associates in Pittsburgh, Pa.