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With the stock market hitting all-time highs since the election, and details about President Elect Trump’s tax reform plan for middle class families now known, you can combine your record investment gains with the following tax strategy to wipe out the tax on $30,000 in capital gains each year while your child is in college. If you can avoid the so-called kiddie tax you could even pay $0 in taxes on as much as $50,000 in gains each year!

Many parents simply earn too much for their child to qualify for need-based college aid, so they need to shift their focus to what I call Tax Aid, because that elite $68,000 a year private college isn’t just $68,000 a year. If you are paying for it out of income (it’s $101,000 in 33% bracket) or the sale of appreciated assets you have to pay the tax on your income first before you write the check to the college ($101,000 – $33,000 =$68,000). Any reduction in the tax cost associated with paying for college is what I call Tax Aid.

In the following hypothetical example you will gift your daughter appreciated stock or other investments like mutual funds or ETFs, and your daughter will use the $15,000 standard deduction for single tax filers under the Trump tax plan in combination with the existing $2,500 American Opportunity Tax Credit to offset $30,000 of long-term capital gains in a single year.

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Standard Deduction and Personal Exemption Under Existing Rules and Trump Rules

Under current 2016 tax rules, parents will typically claim the $4,050 personal exemption for their child because the parents are providing greater than half of the child’s support throughout the year. However, during the college years, if your daughter uses her own income and assets to provide more than half of her own support (roughly half the total cost of college), then she would also be able to claim the personal exemption of $4,050 (for 2016) for herself, instead of you (the parent) claiming it.

Under the Trump tax plan there will be no personal exemption, but the standard deduction will be much higher to help offset the loss of personal exemptions.

The standard deduction (for 2016) for a dependent child (i.e. parents claim the personal exemption for the child), is the child’s earned income +$350 up to the maximum of $6,350. However, if your child is claiming the personal exemption for herself (i.e. passed the support test), then she can automatically claim the personal exemption and the full standard deduction of $6,350, regardless of earned income.