My 15yo has a Fidelity Youth Account. Right now, it has around $600 in gains. Currently she has no other income, my understanding is that she could sell stocks/mutual funds to capture the gains and step up the basis, and not owe any federal taxes on the gains because the amount of gains is so low.
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Is this line of thinking correct? And the limit is $1,350 before we worry about any federal taxes, and $2,700 before Kiddie tax becomes a problem?
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She likes some of the stocks she owns and wants to keep them; is she allowed to sell and rebuy the same investments a few days later after the sale goes through, or is there some rule about waiting?
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If she does get a part-time job, does earned income need to be considered in this strategy? The Kiddie tax limits are for unearned income, but I don't know how earned income comes into play.
Thank you!
Teen selling stocks/index funds to step up basis
byu/berrybri intax
Posted by berrybri
2 Comments
There is no rule about selling stocks with a gain an rebuying. $1,350 is the filing requirement but if the stock gains are long term there will be no taxes until $2,700.
Yes, if she has earned income it will reduce the amount she can sell without having to file a tax return.
Yep, your understanding is pretty much on the right track. Since her gains are still low and she doesn’t really have other income yet, it usually works out fine. And from what I know, wash sale rules are more for losses, not gains, so selling and rebuying later shouldn’t be the same issue.
Once she starts earning from a job though, that’s when it’s good to double check how everything mixes together tax-wise.