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Avoiding capital gains taxes when reallocating portfolio
Posted on 7/9/14 at 7:53 am
Posted on 7/9/14 at 7:53 am
I have big gains in all of my taxable portfolio positions. I want to move from some high/moderate risk investments to lower risk ones, but will get hammered by taxes if I sell.
Forbes article says following:
' Stock exchange. Stock investors with highly appreciated securities can also do a like-kind exchange. Certain services offer investors with one highly appreciated security a way to trade it for an equivalently valued but more diversified portfolio.'
Anyone have any idea what they're talking about? I've always understood that 1031 exchanges, for example, are not allowed for stocks.
Forbes article says following:
' Stock exchange. Stock investors with highly appreciated securities can also do a like-kind exchange. Certain services offer investors with one highly appreciated security a way to trade it for an equivalently valued but more diversified portfolio.'
Anyone have any idea what they're talking about? I've always understood that 1031 exchanges, for example, are not allowed for stocks.
5
Posted on 7/9/14 at 8:14 am to Ole War Skule
Not sure what that article is talking about. 1031 exchanges don't apply to stocks or bonds. I'm not aware of any exchanges you could do with stocks to avoid capital gains taxes, unless you have some holdings with losses you could sell at the same time to offset some of the gains.
Even if you could do a 1031 exchange the gain is deferred to a later time, so you'll be paying taxes on it at some point either way.
Even if you could do a 1031 exchange the gain is deferred to a later time, so you'll be paying taxes on it at some point either way.
Posted on 7/9/14 at 8:18 am to Ole War Skule
I have not heard of such a thing for stocks.
There are some things you might do I suppose. You might buy puts on the stocks in your taxable account and then margin the stocks to raise the cash to buy lower risk investments. The danger there would be if the market fell you would have a profit on your puts that might be taxed as ordinary income.
I think we are basically screwed by capital gains taxes.
They are unfair.
There are some things you might do I suppose. You might buy puts on the stocks in your taxable account and then margin the stocks to raise the cash to buy lower risk investments. The danger there would be if the market fell you would have a profit on your puts that might be taxed as ordinary income.
I think we are basically screwed by capital gains taxes.
They are unfair.
Posted on 7/9/14 at 8:27 am to Ole War Skule
Have you held them long enough for them to be considered long term capital gains?
If not consider buying puts to protect yourself on downside. That brings a tax liability on the puts if things go down, but if done properly would be better than the ~20% difference between long and short term capital gains.
If not consider buying puts to protect yourself on downside. That brings a tax liability on the puts if things go down, but if done properly would be better than the ~20% difference between long and short term capital gains.
Posted on 7/9/14 at 8:51 am to LSU0358
Sell your highest cost basis lots out to limit your taxes, HIFO.
One of the rules of a solid financial plan however is don't let the consideration of taxes to ruin your plan,
One of the rules of a solid financial plan however is don't let the consideration of taxes to ruin your plan,
Posted on 7/9/14 at 9:16 am to Shepherd88
Are you making any charitable contributions? Make a gift of stock instead of cash. You can donate highly appreciated stock to most nonprofits (at least those large/sophisticated enough to have brokerage accts). This avoids the cap gains, gets you the charitable deduction, and helps out your favorite cause.
LSU Foundation will be happy to handle your stock gift.
LSU Foundation will be happy to handle your stock gift.
Posted on 7/9/14 at 9:39 am to hungryone
thanks for the replies and ideas...
* charitable: Nope, too much
* sell highest cost positions: Nope, want to liquidate entire positions
* don't let taxes influence plan: I know that's conventional wisdom, but I don't fully agree. Selling an investment effectively means taking a 24% hit immediately on the new investment. That has to be considered.
* buying puts: gains are long term, so don't want to trade cap gains for regular income...also, I just want out of the positions as I believe others will perform better over the long term.
* charitable: Nope, too much
* sell highest cost positions: Nope, want to liquidate entire positions
* don't let taxes influence plan: I know that's conventional wisdom, but I don't fully agree. Selling an investment effectively means taking a 24% hit immediately on the new investment. That has to be considered.
* buying puts: gains are long term, so don't want to trade cap gains for regular income...also, I just want out of the positions as I believe others will perform better over the long term.
Posted on 7/9/14 at 9:53 am to Ole War Skule
quote:
Selling an investment effectively means taking a 24% hit immediately on the new investment. That has to be considered.
This is why tell myself that I don't have as much $ in my portfolio as it looks like. In reality you will eventually pay taxes one way or another (unless you croak, which is not a best-case scenario, tax-efficient as it may be), so a portfolio's true value is something less than the bottom line on the quarterly statement.
In other words, you're not really "taking a hit" by making the move. The hit was always there.
Posted on 7/9/14 at 9:58 am to Ole War Skule
I've never heard of a like kind exchange for a stock portfolio.
Each stock purchase and sale is a seperate economic event. When you sell an appreciated stock, you made money on it, actual cash money, and you have to pay the taxes on that.
Do you have any loss posistions you can sell in the same year?
Each stock purchase and sale is a seperate economic event. When you sell an appreciated stock, you made money on it, actual cash money, and you have to pay the taxes on that.
Do you have any loss posistions you can sell in the same year?
Posted on 7/9/14 at 10:16 am to LSUFanHouston
quote:
a portfolio's true value is something less than the bottom line on the quarterly statement.
so true, but hard to remember...and that value can change from year to year based on changes in tax policy or one's income
quote:
I've never heard of a like kind exchange for a stock portfolio.
neither have I, which is why I can't figure out what the Forbes guy is talking about...he mentions some 'services' that can do the exchange, but isn't more specific
quote:
Do you have any loss posistions you can sell in the same year?
nope, all positions in my taxable account have gains
Posted on 7/9/14 at 11:15 am to Ole War Skule
Again, I urge y'all to consider DONATING highly appreciated stock.
Do you make a tax-deductible gift to TAF when buying your LSU season tickets? (some seats in Death Valley require this donation) Do you write an annual check to your alma mater or your kids school? Donate the highly appreciated securities instead: you will receive the charitable contribution at full present market value, avoid ALL capital gains, and still have the cash you would have used to make the donation.
If your goal is to rebalance a portfolio, the appreciated securities donation can achieve multiple goals at once. Read more here: LINK
Do you make a tax-deductible gift to TAF when buying your LSU season tickets? (some seats in Death Valley require this donation) Do you write an annual check to your alma mater or your kids school? Donate the highly appreciated securities instead: you will receive the charitable contribution at full present market value, avoid ALL capital gains, and still have the cash you would have used to make the donation.
If your goal is to rebalance a portfolio, the appreciated securities donation can achieve multiple goals at once. Read more here: LINK
Posted on 7/9/14 at 11:19 am to Ole War Skule
Tangent, but this is another reason why I dislike using stocks instead of mutual funds for diversification: reallocation headaches.
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