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All assets within estate tax exemption limit $11.5M ($23M for married) receive a step-up basis on death. This means that cost basis resets to market value on th

All assets within estate tax exemption limit $11.5M ($23M for married) receive a step-up basis on death. This means that cost basis resets to market value on the day you die, and your heirs can sell at market price the amount of money required to pay off the accumulated debt and start the cycle anew. It's a bit similar to tax gain harvesting, which is when if you live in a no state income tax state and anticipate making very little income this year, but have some appreciated stocks, what you can do is harvest the tax gains by selling the stocks in order to reset to the higher cost basis and immediately buying them back. Since you have little income, you can get away paying $0 tax until $38.6k ($77.2k if married).

WalterBright 5y ago
> and immediately buying them back That's called a wash sale and the IRS is going to have a word with you about it. If you're going to do these things, I recommend getting some advice from a tax accountant.
- novok 5y ago
  You buy an equivalent ETF. So sell your VTI and buy SCHB. It's a different stock ticker!
  - ryandrake 5y ago
    Wash sale rule applies to identical or "Substantially Identical" securities [1]. IRS is a bit vague in its definition, and you may have to argue that the new security is not Substantially Identical. Your example are two different indexes and two different companies, so it might be fine. 1: https://www.investopedia.com/terms/s/substantiallyidenticalsecurity.asp https://www.investopedia.com/terms/s/substantiallyidenticals...
    - novok 5y ago
      A large amount of tax loss harvesting automation services work on the principle I just described, I even used one for a while. You have to tell them which funds you already own elsewhere so they wont trigger that wash sale rule inadvertently, or move all your stock funds to them. For something like VTI, you have about 4 other companies that have a similar product you can execute it with. Schwab, Fidelity, iShares, SPDR. Other major banks probably also have them, but they're usually not as popular.
- ac29 5y ago
  Wash sale rules dont apply when selling investments at a profit.
- ctchocula 5y ago
  Like ac29 pointed out, wash sales only apply to losses. The motivation for the wash sale rule in the first place is IRS doesn't want you to be able to use a paper loss for tax deduction and let you maintain the same stock position. Tax gain harvesting is similar, but the opposite of tax loss harvesting in some sense, because instead of a loss, you are taking a gain in a low income year. IRS doesn't care if you are generating capital gains, because for most people with stocks (read: not making low income) it increases your taxes owed.
- RhysU 5y ago
  To my knowledge, there's no wash sale rule on gains. Only losses. One can sell a stock, pay the gains, and buy it back immediately at current market value making the holdings cost basis today's market value. Why would you do such a thing? Exactly as the GP said, to take advantage of better capital gains rates during a low income year. Another fun one is deliberately realizing small gains in a kid's UTMA account then paying a modest sum to file taxes for the kid. Only works for a specific amount of gains/income each year so read up first.

WalterBright 5y ago

> and immediately buying them back That's called a wash sale and the IRS is going to have a word with you about it. If you're going to do these things, I recommend getting some advice from a tax accountant.

novok 5y ago
You buy an equivalent ETF. So sell your VTI and buy SCHB. It's a different stock ticker!
- ryandrake 5y ago
  Wash sale rule applies to identical or "Substantially Identical" securities [1]. IRS is a bit vague in its definition, and you may have to argue that the new security is not Substantially Identical. Your example are two different indexes and two different companies, so it might be fine. 1: https://www.investopedia.com/terms/s/substantiallyidenticalsecurity.asp https://www.investopedia.com/terms/s/substantiallyidenticals...
  - novok 5y ago
    A large amount of tax loss harvesting automation services work on the principle I just described, I even used one for a while. You have to tell them which funds you already own elsewhere so they wont trigger that wash sale rule inadvertently, or move all your stock funds to them. For something like VTI, you have about 4 other companies that have a similar product you can execute it with. Schwab, Fidelity, iShares, SPDR. Other major banks probably also have them, but they're usually not as popular.
ac29 5y ago
Wash sale rules dont apply when selling investments at a profit.
ctchocula 5y ago
Like ac29 pointed out, wash sales only apply to losses. The motivation for the wash sale rule in the first place is IRS doesn't want you to be able to use a paper loss for tax deduction and let you maintain the same stock position. Tax gain harvesting is similar, but the opposite of tax loss harvesting in some sense, because instead of a loss, you are taking a gain in a low income year. IRS doesn't care if you are generating capital gains, because for most people with stocks (read: not making low income) it increases your taxes owed.
RhysU 5y ago
To my knowledge, there's no wash sale rule on gains. Only losses. One can sell a stock, pay the gains, and buy it back immediately at current market value making the holdings cost basis today's market value. Why would you do such a thing? Exactly as the GP said, to take advantage of better capital gains rates during a low income year. Another fun one is deliberately realizing small gains in a kid's UTMA account then paying a modest sum to file taxes for the kid. Only works for a specific amount of gains/income each year so read up first.