So I’m a US citizen and long-term Japan resident (over 10 years) looking to sell some of my poorly performing Vanguard index funds and use that money to buy more of the better performers.
I have eight funds in total ranging in performance from a 3.3% return rate to a 12.4% return rate. Advice I've read seems to indicate holding three or four funds (e.g., total US stock market, all-world ex US, total US bond market, and maybe a REIT fund) is probably sufficient diversification.
My understanding is that on the US side if I sell I’m subject to long-term capital gains taxes on the investment returns at a tax rate of either 0%, 15%, or 20%, depending on my income. I think I’d be taxed at 0% because I use the foreign earned income exclusion to effectively make my US income $0. In other words, I think I should be able to sell index funds up to the point their investment returns total the maximum income I can have that still allows me to pay 0% in capital gains taxes (which I think is $44,625 for single people) and therefore pay $0 to the IRS.
Example: I sell one low performer whose total investment returns have been $6,000, resulting in a total income of $6,000 (since my wages are "wiped" out by taking the FEIE). This is less than $44,625 so I'd be taxed at a rate of 0% for those capital gains and wind up paying $0 in US taxes.
Can anyone more knowledgeable than me (likely everyone on this subreddit lol) confirm whether my above understanding is correct?
Lastly, can anyone explain how this will work on the Japan side as well? Thanks!
by advise-me4545