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The bunching of capital gains realizations

February 19, 2017

The bunching of capital gains realizations

Timothy Dowd and Robert McClelland, Urban Brookings Tax Policy Center (February 2017).  This paper models taxpayer decisions to realise or delay their capital gains and losses. Its authors use a unique data set of capital asset sales to examine the shifting of gains across time periods with different tax rates, but eliminates the effect of the large pool of accrued gains that enlarge previous estimates. They find strong evidence that taxpayers realise fewer gains in the weeks prior to reduction in tax rates. However the magnitude of the responses are small. They find that high income taxpayers are more responsive than others and that taxpayers reduce their tax liability by pairing gains and losses.