Can I Split Capital Gains Tax Between Years or Write Off Margin Loan for Property Purchase?

But what if they refinance later with a mortgage? Would they be able to deduct the mortgage interest under the new rules? Also wouldn't the capital gains be taxed at different rates depending on income brackets?

If you later refinance with a proper mortgage, you potentially could deduct that mortgage interest, though only on loan amounts up to $750,000 for a primary residence under current tax law, and only if you itemize deductions rather than taking the standard deduction. For capital gains, yes, they're taxed at different rates depending on your income bracket. If your income (including the capital gains) is under $44,625 for single filers or $89,250 for married filing jointly (2024 figures), you might qualify for the 0% long-term capital gains rate. Income above that but below $492,300 (single) or $553,850 (married) would be taxed at 15%. Anything higher gets the 20% rate. Plus, there's potentially the 3.8% Net Investment Income Tax if your modified adjusted gross income exceeds $200,000 (single) or $250,000 (married).

Does this work for figuring out state taxes too? I'm in California and the capital gains hit here is brutal on top of federal.

Can it handle complex situations with multiple income sources? I have W2 income, rental property income, and stock sales and trying to figure out how they all interact is giving me a headache.

Yes, it handles state taxes too, including California's higher rates. I'm also in CA and it calculated both federal and state implications for different scenarios. The tool specifically showed me how the state taxes would stack with federal, which was eye-opening. For multiple income sources, that's actually where I found it most helpful. My situation included consulting income (1099), W-2 salary, and capital gains from stocks. It showed how these different income types would interact in terms of tax brackets and marginal rates. It even helped me time my stock sales to minimize the overall tax hit when combined with my other income.

Wait, is this legit? How does a third party service get you through to the IRS faster? Sounds like they're just charging for something that should be free.

I'm skeptical. The IRS phone system is notoriously terrible. How could some outside service possibly bypass their queue? Seems fishy to me.

It's completely legitimate. They don't bypass the queue exactly - they use technology to handle the waiting for you. Basically, they call the IRS and navigate the phone tree, then wait on hold while periodically checking if a human has answered. When an agent picks up, they connect the call to your phone. You only pay if they successfully connect you. I was skeptical too, but it works because they're not doing anything sneaky - they're just automating the hold process so you don't have to sit there listening to the hold music for hours. The IRS doesn't mind because from their perspective, it's just a normal call in their queue. I actually asked the IRS agent about it when I got connected, and she said they're aware of these services and they're perfectly fine with them.

I thought 1031 exchanges only worked for like-kind real estate properties? Can you actually use them when going from stocks to real estate? That would be amazing if true.

You're absolutely right, and I apologize for the confusion. 1031 exchanges only work for like-kind real estate properties, not from stocks to real estate. I was mixing up different tax strategies. What you might want to consider instead is whether any of your stock positions have losses that could be harvested to offset some of the gains. Tax-loss harvesting could help reduce the overall capital gains tax burden. But unfortunately, there's no way to directly defer taxes when converting stocks to real estate like you can with a 1031 between properties.

This is such an important point! I got burned last year because I sold some stocks after 11 months thinking I'd get the long-term rate. Ended up paying almost double what I expected in taxes.

They're definitely long-term holdings - I've had most of these positions for 5+ years. So I should qualify for the lower capital gains rates. Does that make the splitting strategy between tax years less important since I'd be in the 15% bracket either way? Or is there still an advantage?

Even with long-term holdings, splitting between tax years could still be beneficial! Here's why: if you realize all $320k in gains in one year, that might push you into the 20% capital gains bracket (kicks in at $492,300 for single filers). But if you split it - say $160k in 2024 and $160k in 2025 - you might stay in the 15% bracket both years, especially with your lower W-2 income. Also don't forget about the 3.8% Net Investment Income Tax that applies if your modified AGI exceeds $200k. Spreading the gains could help you avoid or minimize that additional tax. The math gets complex when you factor in your regular income plus the capital gains, so definitely worth running the numbers both ways!

This is really comprehensive advice! The estimated tax payment reminder is especially important - I made that mistake a few years ago and got hit with penalties even though I paid everything by April 15th. One thing I'd add about the cash flow timing: consider keeping a bit more liquid than you think you'll need for closing costs and immediate expenses. When I sold stocks for my down payment, I underestimated how much I'd want to set aside for taxes and ended up having to sell a few more shares than planned at less favorable timing. Having that buffer gives you more flexibility with the exact timing of your sales. Also, @f014fc63b237 makes a great point about state taxes - some states like California will really amplify the benefit of splitting between tax years since they tax capital gains as regular income at much higher rates than the federal preferential rates.

This is really solid advice, especially the point about documentation and share identification. I learned this the hard way during my first big stock sale - I had bought shares of the same company over several years and didn't properly track which lots I was selling. It turned into a nightmare during tax season trying to reconstruct the cost basis. The securities-based lending suggestion is interesting too. I hadn't considered that as an alternative to traditional margin loans. Do you know if those typically have better rates or terms? And would the interest deductibility rules be exactly the same since it's still borrowing against securities for a personal residence purchase? Also wondering about the settlement timing - if someone is selling stocks in late December to capture 2024 tax year, they'd need to execute by around December 27th to ensure settlement by December 31st, right? The holiday schedule could make this tricky to coordinate.

You're absolutely right about the year-end settlement timing - December 27th would be the latest for regular settlement to clear by December 31st, and that's assuming no market holidays interfere. The holiday schedule definitely adds complexity. On securities-based lending vs margin loans: The rates are often comparable or sometimes slightly better, and the credit lines tend to be larger relative to your portfolio value. However, you're correct that the tax deductibility rules would be identical - the IRS tracing rules still apply, so interest on funds used for personal residence purchase wouldn't be deductible regardless of the loan structure. The main advantages of securities-based lending are usually: 1) potentially better rates and terms, 2) doesn't require you to maintain a margin account with trading restrictions, and 3) often more flexible repayment terms. But for tax purposes, it's the same limitation. @5da4638a78e9 Your point about working with a CPA is crucial here. With $320K in gains, even a 1-2% difference in effective tax rate from proper planning could save several thousand dollars - easily justifying professional tax advice.