Broker Check

FRS Tip of the Month

December 28, 2023

The Underutilized Step Up in Basis 

          If you have a mutual fund or brokerage account (not inside of an IRA or 401k) with a long-term capital gain (assets held over 1 year) a sale may trigger no tax and you get to reset your after-tax cost basis higher!

          Here's how it works. If your total taxable income (including the gains of the sale of taxable investments such as mutual funds, stock or real estate) is $47,025 for individuals and $94,050 for married filers or under, the long-term capital gains rate is 0%. Let's look at an example. Mr. and Mrs. Jones have income totaling $50,000. After they get to apply their standard deduction of $29,200 that reduces their taxable income to just $20,800. That means they could sell a mutual fund or stock with up to a $30,200 long-term capital gain and pay no tax on the sale and immediately reinvest back into that investment and better yet, increase their cost basis to the current value of the sale! I know it's confusing and if you would like to see if you can benefit from this strategy give us a call. We can work with your accountant to make sure you're not missing any tax planning opportunities!