Here's an email I recently received from a reader:
Here is my situation:
- I have a stock (held for over a year) that has grown very nicely.
- If I sold this position I would reap about $15,000 in capital gains.
- I am currently in the 15% tax bracket.
- My annual household income is approx $70,000 per year.
Because of the Bush tax cuts currently in effect, if I sell my stock anytime from now until the end of the year, I will pay 0% in capital gains. If congress does NOT extend the tax cuts, then next year they roll back and my capital gains rate goes to 10%. That means if I sell on or before Dec 31st I will pay $0, if I sell on or after Jan 1st I will pay $1500 in taxes.
Sometime in the next 3 months I am inclined to simply sell the stock and rebuy it back again the same day. This would effectively “lock in” the rebuy-price as my cost basis for tax consideration in the future. I could do this without penalty because there is no 30-day wash-sale rule regarding capital gains, like there is for capital losses.
Now, here’s my dilemma. My eldest son is a senior in high school, meaning I am about to start down the process of filling out the dreaded FAF (financial aid form) that colleges use to determine a family’s “need” for aid. If I take that large cap gain, will the FAF consider ours to be a family that earns $85,000 per year and therefore less “needy” as far as aid goes?
I know taking the gain now will save me $1500 in taxes. The question is, will it potentially cost my son and I more than that in financial aid?
What's your advice for him?