Splitting Capital Gains Tax Between Years & Margin Loan Write-Off for Property Purchase

Thanks for the info! So if I understand correctly, the splitting across tax years would help, but the margin loan interest wouldn't be deductible. Two follow-up questions: 1) Is there a way to structure the margin loan to make it deductible? And 2) Are there any special considerations for capital gains rates I should know about given my income level?

You've got it right about splitting the gains and the margin loan interest. There is a potential way to make margin loan interest deductible, but it requires careful structuring. If you can document that the loan is used for investment purposes rather than for your residence, it might be deductible. For example, if you maintain your investment portfolio and use the margin loan against those securities while using other cash for the house. However, this gets complicated and would require detailed documentation and possibly consulting with a tax professional. Regarding capital gains rates, given your income level, you might qualify for the 0% long-term capital gains rate on a portion of your gains. In 2024, single filers with taxable income under $44,625 (or $89,250 for married filing jointly) can have some long-term capital gains taxed at 0%. Beyond that threshold, the rate jumps to 15% up to $492,300 for single filers. So spreading the gains might keep more of your money in the lower capital gains tax brackets.

Does this work for more complicated situations? I have RSUs vesting and some short-term gains mixed with long-term. Can it handle sorting through all that and recommend what to sell when?

I'm skeptical - wouldn't any basic tax calculator show you this info? What makes this different from just talking to an accountant? Especially when dealing with margin loans which seem pretty complex.

For complicated situations with RSUs and mixed short/long-term gains, that's exactly where I found it most valuable. It differentiates between short and long-term capital gains rates and shows how RSU vesting affects your overall tax picture. It can recommend which specific lots to sell based on holding periods to optimize between short and long-term rates. What makes this different from a basic calculator is that it runs thousands of scenarios simultaneously and accounts for all the tax code details - AMT implications, NIIT thresholds, state-specific rules, and so on. Most accountants give general advice, but this actually shows you specific actions to take with specific investment lots. For margin loans, it helped me understand exactly how much interest would be deductible based on my investment usage versus personal usage allocation.

How does this actually work? Do they just call the IRS for you? I've been trying to get through for days about my capital gains question.

This sounds too good to be true. The IRS is basically unreachable these days. I've tried calling multiple times about my capital gains questions and never got through. You're saying this service somehow jumps the queue? I'm doubtful.

They don't just call for you - they use a system that navigates the IRS phone tree and holds your place in line. When they reach a real person, you get connected directly to the agent. It's like having someone wait on hold for you, but with advanced technology that keeps trying even when the lines are busy. I was skeptical too until I tried it. The way it works is they have specialized technology that constantly redials and navigates the phone systems. They're essentially using technology to solve the understaffing problem at the IRS. In my case, they got me through when the wait times were showing as 2+ hours. I spoke with a real IRS agent who answered my specific questions about capital gains from property sales and the timing requirements.

Good point about holding periods! Do you know if the wash sale rule would apply if OP wanted to rebuy some of the same stocks later? And would the capital gains affect Medicare IRMAA surcharges if OP is on Medicare?

The wash sale rule only applies to claiming losses, not gains. So if OP sells positions at a profit, they could repurchase the same stocks immediately without tax consequences. However, they'd have a new cost basis and holding period for those repurchased shares. Capital gains absolutely can affect Medicare IRMAA surcharges. Those surcharges are based on your Modified Adjusted Gross Income from two years prior. So large capital gains realized in 2024 could trigger higher Medicare premiums in 2026. The IRMAA thresholds start around $97,000 for single filers, and with $320,000 in capital gains, OP would likely face significant surcharges if they're on Medicare in two years.

A 1031 exchange only works for real estate to real estate. Since OP is selling stocks to buy the property, a 1031 exchange wouldn't apply here. You can't 1031 from stocks into a property.

That's right - I completely mixed that up! Thanks for the correction. So there's really no way to defer capital gains when going from stocks to real estate, which makes the year-splitting strategy even more important to consider.

This is a really smart long-term strategy that I hadn't considered! So essentially you're saying OP could turn what's initially a tax burden into a future tax advantage by using the primary residence exclusion later. Quick question though - if OP splits the stock sales between 2024 and 2025 as discussed, would the timing of those sales affect the 5-year ownership requirement for the primary residence exclusion? Or does the ownership period only start when they actually close on the property in January? Also, do you know if there are any complications with the primary residence exclusion if you initially bought the property with cash from stock sales? I'm wondering if the IRS views that differently than a traditional mortgage purchase.