HIFO?

[Looking4Ward]

Whenever I need cash, I sell some of my after-tax investments. Normally that results in a 25-35% capital gain over cost basis that I report on taxes and counts against ACA.

I need a substantial amount of cash by the end of this year for a large ($100k) one time purchase. If I use HIFO as my cost basis, the capital gain is reduced to around 3% because it's picking shares purchased more than a year ago but at close to present value. This will prevent me from exceeding ACA cap and also needing to pay additional income tax.

My question is whether or not this is a smart move. I understand it means my future cost basis will be much lower and capital gains much higher on future withdrawals but I don't anticipate ever having to make a cash conversion of this magnitude again.

 

[RunningBum]

Yes, it makes total sense. Unless capital gains tax rates increase in the future, I see no reason not to minimize them now. In the future you might use the higher gainers for charitable giving, or save them to be passed to your heirs with stepped up basis.

 

[OldShooter]

We are in a similar situation, with a final payment of $200k on a house build coming due before year end. I've been keeping a careful eye on tax brackets and we're about to break out into a higher one, so I am going to borrow that $200K on a HELOC and pay it back next year. Depending on your numbers, you might benefit from borrowing some of that $100K and spreading your capital gains over two years instead of taking the whole hit now. Maybe it would mean that you didn't have to only sell the high basis stocks.