Tax Experts

Do I Have to Pay Capital Gains?

Q: We are normally in the 10% tax bracket. Our financial person sold 840 shares of a stock we had held for many years, and the sale put us in the 25% tax bracket.

Is there a way we can spread the tax liability over a period of years, instead of having to come up with over $5000 to pay taxes this year? The money was reinvested the same day in an international fund. -- L. Ingalls

Kevin's Answer:

Sorry, but no.

Assuming this was a taxable account (rather than, say, an IRA), then the gain is taxed in the year it is realized, regardless of whether the money is reinvested.

Assuming this was a long-term gain, part of the gain may still be taxed at just 5% rather than the higher 15% long-term gains rate. You pay the 15% rate only to the extent that your income (including the gain) would push you into the 25% bracket. Any part of the gain that keeps you below the 25% tax bracket (if it were ordinary income, not capital gain) is still taxed at 5%.

Complicated? Yes. But it should save you some money.

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