|> The long term capital gains rates don't change; while the thresholds for a 15% and 20% rate moved slightly,|
> in my opinion it is not enough to affect financial planning that would seek to allocate income for 2017 as
> opposed to 2018.
It's not that simple. Yes, while the capital gains rate stays the same, if you get a big slug of income it pushes ordinary income up into a higher marginal rate. In other words—yes, the LTCG is taxed at a low rate, but other income that was previously taxed at a low rate is now taxed at a higher rate. So, the net effect is that the additional dollar, even though it's a LTCG, is being taxed at a high rate.
I had (until this morning) a long-standing GTC sell order for some old, long-term, core IMMU shares, at a price slightly above where we are now. Last night, on a hunch, I did a "what if" calculation to see what the Federal income tax would be on that trade, under current law.
I was shocked to find that the tax on my capital gain would have been about 40% (not 15% or 20%). Why? I'm hard-pressed to explain where the full 40% came from. All I know for sure is that I presumed an increase in LTCG of X, my tax went up by Y, and Y/X was 40%. However, it seems that the biggest factor was that ordinary income was kicked up to a higher marginal rate. That is, The first $X were taxed at 15% and some at 20%, but then the remainder of my income was then in a higher bracket. In particular, there was a correspondingly large amount of ordinary income that was now subject to the AMT—that is, at the marginal AMT rate of 35%. The Pease limitation on itemized deductions kicked in, which raised the effective rate by 3%. I presume that the ACA tax also mattered.
The solution to this problem—to also address a previous post about year-end selling strategies—was to change my order to an in-the-money covered call, with an expiration of January and a strike price of 15. This commits me to selling the shares at an effective price above what I originally intended, but the trade won't happen until the new tax law kicks in next year. And if IMMU drops below 15, I keep the shares and a nice options premium.