[SOLVED] stock appreciation--avoid gains this way? Solved

May 12, 2021 Last reply: 5 years ago 5 Replies
M

Suppose I own 500 sh of XYZ with a large (long term) cap. gain, say $100K.



XYZ is going down along with the market. I am forced to hold XYZ as I don't want to pay 15%. My thinking is to leave the stock for my children so they get the stepped up basis. But can I do the following:



Sell short 500 sh. of XYZ ("against the box"). This will create a revenue neutral position for any future changes. Buy it back (ie: close out the short position) when the market changes, taking the gain/loss on the short position.



Mel


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J

From

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The Taxpayer Relief Act of 1997 (TRA97)
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no longer allowed short selling against the box as a valid tax deferral practice. Under TRA97, capital gains or losses incurred from short selling against the box are not deferred. The tax implication is that any related capital gains taxes will be owed in the current year.

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T

are options an option?

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M

KILLJOY!

Thanks for the info. So that method was eliminated 24 years ago. I missed the memo

On the positive side, I'm pleased I remembered the concept!!!

I would buy puts, but the stock is too volatile so the premiums are too high!

Mel

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T

You might short sell a "comparable" equity. Not exactly guaranteed though. Are Walgreens and CVS "comparable"? In some ways yes, in some ways no . . .

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T

It certainly sounds like you may have reasons to want to sell XYZ that are independent of the tax issues. You may not want to have your investment decisions driven primarily by tax considerations, particularly if you believe there is a better investment that will more than make up for the 15% tax rate.

And a 15% tax rate on capital gains is quite low, both in absolute terms and certainly historically. Figuring out future tax changes is, of course, unknowable but it seems more likely that the capital gains tax rate will go up rather than down, given the current historically low rates.

So it may be wiser to decide if you really want to keep XYZ until death or if it would make more sense to switch to another investment instead. But paying

15% on 100k of gain may be a better wealth-building move than paying 0% on 50k of gain if you believe that the stock price will be heading lower than other available investments.
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