It seems like everywhere I go, there are cars on the side of the road and the unmistakable buzz of people with “yard sale face” rushing to see what hot deals they can find. It’s nice to see some post pandemic normalcy.
It’s always been a summer ritual, and as badly as we all crave summer, a welcome sign. The biggest yard sale we have ever seen has been open and running for almost a decade now and still not many people are parking out front and rushing in and THEY SHOULD BE! It’s the capital gains tax rate and it’s a big sale.
Does the IRS really have “Yard Sales?” Yes, all the time! The tax code is much more fluid than the public is truly aware of and deductions and credits come and go all the time. Deductions like mileage for business owners change with the cost of gasoline, for instance, and can go up and down annually. Often, it is actual programs that come and go, like energy tax credits or child care credits. Often these programs are temporary and depending on whether the government believes that they have met their objectives, sometimes expire, or may become permanent.
Capital gains taxation is one of those items. It’s been changed over the years, but under the original Bush tax cuts was dramatically reduced, and then what was intended to be temporary has been extended again and again, with only one small alteration recently affecting the very top income earners. A totally misunderstood gem, most of the public thinks the tax would be substantial, so they are not taking action on capitalizing a gain, even though for the most part the tax would be less than what they imagine, often resulting in no tax at all! Real estate, stock portfolios (which are at an all-time high range) that likely should have some profit taking and other items that receive capital gains treatment should be closely examined, and a tax forecast completed to calculate the actual gain for clients, to replace what is imagined with a real number! Even people in “zero tax brackets” should do this to step up the cost basis on items, potentially free of tax!
Although this may sound complicated and expensive, it is EASY TO DO! Just go to your local tax planner and ask for a review of what profits could be taken at zero capital gain, or perhaps 10%. Get a plan in place now when you have extra time to think about the value of taking gains or stepping up cost basis. Then, set parameters for when you will execute the plan, whether immediate or “if” certain market or housing conditions come to bear. What you could potentially save in taxes by planning ahead could pay for a lot of other yard sale finds this summer!