So I know you pay taxes on capital gains. My question is if you buy shares of x and sell them for a profit, and the you take all those profits and buy shares of y and don't sell them before the end of the year, do you still pay taxes on the profits from x? I know probably dumb question but...
also, didn't we have a thread related to this topic here a while back?
Yes you do. Then you have a new basis starting with the amount and date of the new purchase. You'll take the gain or loss when you sell the new stock.
Also remember the tax rate on those sales will change if you held the stock for more than a year. That rate could be zero to 20% depending on your income:
https://www.bankrate.com/investing/long-term-capital-gains-tax/#short-vs-long
In reply to aircooled :
The tax rate could be up to 37% if you sell in less than a year and have a high income.
I do most of my trading inside a Roth IRA account, which is nice, because you don't have to consider the tax consequences when trading.
https://www.fool.com/knowledge-center/tax-consequences-of-trading-stocks-in-an-ira-accou.aspx
Thanks guys wasn't totally sure ... Hopefully I don't get burned too bad, maybe roth would be best
Yes, in general each transaction is taxed separately. There is an exception to this called a "wash sale rule" though -- if you sell shares of company XYZ at a loss and then buy them back again within a certain period (I think it's 30 days before or after the sale) then you aren't allowed to claim the loss. In your case since you sold them for a gain and bought a different company's stock then this doesn't apply.
SV reX said:In reply to aircooled :
The tax rate could be up to 37% if you sell in less than a year and have a high income.
The flip side of this is that if you've held for less than a year and can sell at a loss, it reduces your taxable income.
I had this scenario earlier this year, I was let go from my position and all of the shares I had from the ESPP were immediately released to me. Because of the situation I was in, I had to sell a lot of shares. I was able to pick the most recently purchased shares, which were less than I paid, so I effectively had a reduction in my income. Meanwhile the shares that I'd held for over a year, which had some gains, I held on to.
But as 1988RedT2 said, if you're able to do all of this within a tax sheltered account (401k, IRA, HSA, 529, 403b, maybe some others) then you don't have to pay any income tax or capital gains tax, at least not right now. If it is a Roth account, you don't have to pay any, ever, more or less, since you already paid it.
In reply to mtn :
Yeah, but the loss is capped at $3000.
In reply to SV reX :
Correct me if I'm wrong, but I think capital losses over $3K can be carried over to the next year(s).
In reply to M2Pilot :
That's above my pay grade. Maybe someone else can respond.
M2Pilot said:In reply to SV reX :
Correct me if I'm wrong, but I think capital losses over $3K can be carried over to the next year(s).
Correct. Also, if you're just trying to reduce income against other gains, you can claim more. The NET loss is capped at $3k. So if you made $20k on one trade, and lost $30k on another, you can claim $23k of losses (negation of gains +$3k), and carry forward $7k for future years.
Flynlow (FS) said:Correct. Also, if you're just trying to reduce income against other gains, you can claim more. The NET loss is capped at $3k. So if you made $20k on one trade, and lost $30k on another, you can claim $23k of losses (negation of gains +$3k), and carry forward $7k for future years.
Capital losses can also be inherited. For example if someone gets $23K in losses in one year, uses $3K of them to offset income, and then dies, the remaining $20K of losses are part of the estate and will carry over to the heirs who can then use them to offset their own capital gains or income in subsequent years.
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