TOOLS — Capital Gains Timing 

To Realize or Not to Realize?

When capital gains tax rates are expected to go up, is it better to realize gains and pay tax now, or defer and pay tax at a higher rate in the future?

The answer depends on many variables, with time horizon often being the most critical. This calculator jointly solves for the amount of gain to realize today, and the allocation to the risky asset going forward to maximize the investor’s risk-adjusted wealth.

Asset Inputs
Time horizon in years

Horizon: 20.00

1.00 50.00
The risk-free (or minimum-risk) nominal interest rate

Nominal Risk-free Rate: 1.5%

0% 10%
Annual expected nominal return on the risky asset to the specified Horizon

Nominal Expected Asset Return: 6.0%

0% 25%
Annual standard deviation of risky asset returns

Risky Asset Volatility: 18.0%

1% 100%
The risk-aversion coefficient given CRRA utility (2-3 is a reasonable range)

CRRA Risk Aversion: 2.00

1.00 5.00
The risky asset's current dividend yield (annual)

Dividend Yield: 2.0%

0% 25%
The % of the total portfolio held in the risky asset

Current risk-asset allocation: 70.0%

0% 100%
Tax Inputs
Value of current unrealized capital gain as % of total portfolio value

Unrealized Gain In Portfolio: 35.0%

0% 99%
The long-term capital gains rate prevailing today

Current Capital Gains Tax Rate: 30.0%

0% 99%
The tax rate expected in the future for long-term capital gains

Future Capital Gains Tax Rate: 50.0%

0% 99%
The probability at the Horizon that the risky asset will be realized in a taxable manner (e.g. sold instead of bequested or inherited)

Probability of Taxable Realization: 100.0%

0% 100%
The tax rate on dividends

Future Dividend Tax Rate: 50.0%

0% 100%
The tax rate on interest

Future Interest Tax Rate: 50.0%

0% 100%
The extent to which a realized loss creates a tax asset for a very short Horizon. 0 = no asset value, 1 = asset valued at 100% gain offset.

Realized loss value (%): 0.0%

0% 100%
The period over which the realized loss value linearly decays from its starting value to zero.

Realized Loss Decay Time: 20.00

1.00 50.00

Capital Gains Timing 

This calculator is for information purposes only, and should not be construed as investment advice.

Optimal % Gain to Realize: Loading...%

Optimal Risk-asset Allocation: Loading...%

Expected Wealth Gain to Horizon (Risk-Adjusted):

No Immediate Realization: Loading...%

Full Immediate Realization: Loading...%

Optimal Allocation and Immediate Realization: Loading...%

X

Baseline Weights: The Baseline defines the strategy's 'average' asset allocation over a long period of time, and serves as the reference point for Long-Term and Trend deviations. The Baseline represents the asset-allocation that a prospective investor would choose were they seeking a static strategy. See here for more information about the Baseline construction methodology.

Target Weights:The target weights used in the periodic portfolio rebalancing. Portfolios may not be rebalanced exactly to target, as Elm's execution engine tries to find a parsimonious set of trades which get as close as possible to target weights while also minimizing transaction costs, tax costs, etc.

Target Weight Breakdown:

Expected Return Metric:

Risk Metric:

Disclaimer

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