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Shielding Gains from Higher Cap Gain Rate in 2011?
Old 09-09-2010, 09:48 AM   #1
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Shielding Gains from Higher Cap Gain Rate in 2011?

I am considering the following strategy - please offer any critiques:

I have stocks with significant long term capital gains. If I sell them in 2010 the gains would be taxed at 15%. In 2011 that rate is due to rise to 20%.

I can permanently shield those gains from that 5% increase by doing the following:

On or near the last trading day of 2010 sell all positions with substantial long term gains. 30 days before the end of the trading year sell positions with long term losses that are approx. equal to the gains (to avoid wash sale rule). On or near the first trading day of 2011, buy back all positions.

This will result in zero tax in 2010 since losses will offset gains and will reset the basis on all positions, permanently shielding the gains from the 5% increase. That 5% increase would otherwise carry approx. a $1000 tax liability.

My shares are all held at Buy and Hold Investments, therefore there are zero transaction costs for the buys and sells.

Anybody see any downside to this strategy?
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Old 09-09-2010, 09:55 AM   #2
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Losses? You should've already realized all your losses last year. I would just sell the losers now. If you buy replacement shares that end up having gains, so what? It won't change anything. However, you won't have to worry about 30 days stuff near the end of the year.
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Old 09-09-2010, 09:55 AM   #3
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I don't understand, if you have loses to counter the gains, then you won't pay takes anyway no matter the CG tax rate?

I would sell and take the LT CGs this year, pay the 15% and save the loses for future when tax rates are higher?
Tom
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Old 09-09-2010, 09:56 AM   #4
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I have lots of carryover losses from previous years. It won't matter to me what the cap gains tax rates are until 30 years from now.
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Old 09-09-2010, 09:57 AM   #5
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There's an old saying: "Capital gains are the cost of doing well"..........
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Old 09-09-2010, 10:08 AM   #6
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Quote:
Originally Posted by teejayevans View Post
I don't understand, if you have loses to counter the gains, then you won't pay takes anyway no matter the CG tax rate?

I would sell and take the LT CGs this year, pay the 15% and save the loses for future when tax rates are higher?
Tom
teejay,

Good point. The reasons I was looking to offset the gain in 2010 is that, unless I do, I have to pay the taxes due from another source or reinvest less in 2011. But you are right, the unrealized losses will be more valuable in 2011 and beyond when they could be used to offset future gains that would be taxed at the higher 20% rate.

Thanks. I will reevaluate the strategy in that light.
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Old 09-09-2010, 11:45 AM   #7
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I once had a salesman that left the job because he said he was paying too much money in taxes.
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