If the shares are in a retirement account like an IRA/401k/Roth IRA/Roth 401k/403/etc then there is no tax when you sell it, but may be tax when you withdraw it.I have a quick question about how capital gains tax works. I have $331,000 in an international stock index that has $61,000 in unrealized capital gains. If I sell and withdraw $50,000 worth of shares, how do I calculate the tax on that withdrawal? All gains are long-term. I’m in the top tax bracket so I’m assuming I use 23.8% as my tax rate.
Thanks in advance.
If the shares are in a taxable brokerage account then the sale will generate a tax but withdrawing the cash from your account afterwards will not generate any additional taxation. In this case the capital gains will depend on the sale method you choose to use. Most brokerages allow a variety of sale methods. Personally I always use the specific identification method when selling in a taxable brokerage account. This allows you to specifically select which shares you are selling. When you are making these selections most brokerages will show you the total capital gain. E.g., here is what that would look like on Fidelity. Let's say I'm selling $50k or so worth of DUHP, which has a price right now of $33.86. $50000/33.86 = 1476.66 shares, so I'll sell 1478 shares.
This shows an unrealized gain/loss of $3490.56 for those 1478 shares that I chose (randomly, in this case). You can choose shares to try to minimize your gains, or however you like.
Anyway, you'd then apply your marginal capital gains rate to this amount. If the gains are long term gains (let's pretend mine are for a second), and with the information that you are in the top tax bracket, this would be 20% plus the 3.8% NIIT for 23.8%. In the case of my example sale above, this would be $3490.56*0.238 = $830.75 due in capital gains tax (assuming it isn't offset by short or long term capital losses).
Note that if any of the gains are short term capital gains for you, you would pay your marginal income tax rate (+ 3.8% NIIT) instead. So if you are in the 37% bracket, that would be 40.8%. In my example it would be $3490.56*0.408 = $1424.15 due in capital gains tax (again assuming it isn't offset by short term capital losses).
Note also that your state may tax capital gains--you would need to find the information specific to your state.
Statistics: Posted by Morik — Thu Sep 19, 2024 10:42 pm