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Selling Inherited Securities & E.I.C.

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    Selling Inherited Securities & E.I.C.

    Elderly customer died in Sept leaving about $60-K in stock & bond mutual fund investment accounts to her 60 year old son. Had never met him. He & his wife (MFJ) have not done well in their life financially. Their 2022 tax return (self-prepared) shows only $25-K in W-2 income. They also care for 3 foster children & their 2022 return shows they claimed these 3 & received nearly $7-K in E.I.C.
    The point of my post is that the mutual funds he has inherited will likely pay out some LTCG distributions (possibly significant) in December. This extra "phantom" income, it seems to me, could cause his 2023 E.I.C. to be lower (possibly much lower) due to the added income. The mutual fund company does not yet know what the amounts of LTCG distributions for 2023 will be, but I'm thinking he may want to sell his shares now & park the proceeds in cash to avoid the December LTCG distribution income. With the basis step-up, his shares are currently slightly below the inherited FMV. Was wondering what other preparers would advise in this situation. Thanks for comments.

    I would guess 60K would produce 5 to10% LTCG in December. That works out to 3K to 6K. The max EIC of 7,430 holds until AGI of 28K before it starts decreasing.

    I would suggest selling 15K to fully fund Roth for each of them. That would put the projected LTCG more in the 2-4K range where there would be little impact on EIC.


      While I understand the income tax options being discussed, isn't this possibly a case of the (tax) tail wagging the dog?

      #1 - Selling some assets now would mean the late December LTCG distributions would not be received. I guess it saves some taxes, but. . .
      #2 - Is it perhaps not wise to sell stocks / mutual funds in a ~down market and thus miss out on any potential capital gains in a recovering market?

      Bottom line is the choice is that of the taxpayer, but hopefully after being fully aware of both the tax and investment income options.


        Originally posted by RWG1950 View Post
        about $60-K in stock & bond mutual fund

        How much is that in stock, versus mutual funds? If a large portion of it is in stocks, the capital gain distributions might not be very high.

        Although not perfect, keep in mind they could make Traditional IRA contributions until April 15th to lower their AGI to whatever they want to maximize EIC.


          EDIT: Rev. Proc. 2022-38​ has the correct amount, $11K for 2023.

          "could cause his 2023 E.I.C. to be lower (possibly much lower)​"

          Like, maybe, zero?

          I was trying to find the 2023 investment income limit for EIC, as I didn't think the higher limits of the last few years were permanent. I could not quickly find anything at or in TheTaxBook What's New early edition, but did find this at another web site:

          "Investment Income Limit: For 2023 and 2024, the limit on investment income one can earn and still be eligible has been set to $3,650."

          EDIT: but now I find this at, so I guess it's a non-issue (unless they are indeed going to have investment income over the limit).

          Investment income limit: $11,000 or less​"

          Determine what counts as earned income for the Earned Income Tax Credit (EITC). Use EITC tables to find the maximum credit amounts you can claim for the credit.
          Last edited by Rapid Robert; 11-03-2023, 01:48 PM.
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