I'm retired for many years and ordinarily my taxable income (from pension, SS, dividends and capital gains) runs around $60,000. I have two questions:
- So far this year I will have sold stock with a capital gain of about ,000. My understanding is that, with that capital gain, my taxable income will be about ,000 BUT because I will still be in the 15% bracket, I will owe no tax on the ,000 capital gain. If I sell more stock with e.g. a capital gain of 00, I will owe 15% tax on the additional 00.
Is that essentially correct?
- I have some stocks which are considered to be Master Limited Partnerships. The distributions are considered to be Return of Capital and are not included in any income calculations for tax purposes but do reduce the cost basis of the stock. If I sell these MLP's, I will incur substantial capital gains because of the reduced cost basis.
What I would like to do in 2009 and 2010 is to sell the MLP's and then buy them back immediately. This will allow me to reset the cost basis to a much higher amount then it currently is without having to pay any additional tax as long as taxable income is still under $85,000. I assume there are no "wash" sale rules for selling at a profit and buying back immediately.
Do you see any problems with this strategy?
My original plan was to hold these MLP's forever and have them go to my estate with a new step-up to market value cost basis at the time of my death. However, there has been talk of eliminating the step-up process in some of the new tax legislation being discussed so I'm considering using the above approach as a hedge against any change in the tax laws.