There are a lot of ways to get your taxable income down: 529, defined benefit plans, the usual suspects of IRA and 401(k). This strategy is to reset the basis on appreciated assets by buying and selling. The real term is “realizing capital gains”.
This strategy will only work if you’re in the 0% long-term capital gains bracket. The limits are high, but not terribly unreasonable for people with an asset cushion.
As the table above shows, a couple would need to have under $75,900 in AGI for the year in order to execute this strategy. Not easy for a working physician but possible with a tax-deferred sledgehammer.
Perhaps it’s a year with a lot of vacation or illness. Perhaps a prolonged recuperation from an operation. Or maybe you’re just backing away from drinking from the fire hose of practice to refresh and adjust priorities. Regardless of the reason, it merits consideration.
Simply sell your assets, and buy them back immediately. There is no wash sale rule for realizing capital gains. This will reset your cost basis moving forward.
You will pay state tax on these realized gains since those are not governed by the IRS. This could be an incredible opportunity if you were to transit to a state with no income tax for a year.
The Ideal Scenario
You’re burned out at work, want a change of scenery and lifestyle temporarily, and want to live off your assets for a bit. Perhaps do some locums to cover the bills but take the time enjoy a life outside of work. I’m not a fan of the saying “you’ve earned it”, but perhaps you need it. This maneuver will make it work to your financial advantage.