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Liquidating Part of Portfolio
Old 12-02-2013, 08:19 PM   #1
Recycles dryer sheets
Join Date: Feb 2013
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Liquidating Part of Portfolio

Hello all,

I have some questions subsequent to my recent post regarding the liquidation of some assets due to a probable home purchase in the next 6 months.
I will likely sell off the enough equities for at least a 20% downpayment, and furniture/decorating expenses. I'm working with my accountant now to determine whether or not to sell in 2013 or 2014 for tax purposes.

1. Do you recommend selling off proportionate amounts to my overall allocation? If I inherited 30% of my overall portfolio value tomorrow, I'd allocate it according to my current AA, so why wouldn't I do the same when selling?

2. I opted for the "Specific Identification" method when purchasing shares on Vanguard. Should I preference selling any certain batches over others? I believe they all have gains. I suppose by selling off "batches" with smaller gains I will decrease my tax liability. Thoughts?

3. The ETFs I am invested in that distribute dividends do so quarterly. So, I am up for my quarterly dividend by the end of this month. If I want to sell in 2013, but still receive eligible dividends before selling (as if I had not yet liquidated), I can do this and still sell in 2013 for tax purposes, right? I just need to hold onto the shares through the ex-dividend date, and I will still receive the dividend. For example, if the ex-dividend date on share ABC is 12-26, payable 12-31, and I sell 12-27, I will receive the dividend on share ABC on 12-31.

4. Any other suggestions to take into account when liquidating a large chunk of your portfolio? Unfortunately, all of my gains will be short term. Some of them would be long term if I waited until late February/early March to sell, but I will need the money by May at the latest, and don't want to risk a Q1 2014 market drop.

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Old 12-02-2013, 09:29 PM   #2
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Join Date: Jul 2005
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1. Your AA should look perfect after you sell. You should probably sell some in 2013 and some in 2014, though if you stay below $250k AGI it might not make a difference. Not that big a house?

2. You should generally sell the highest cost shares. Delay taxes as long as possible in this case.

3. In general, sell now. Any non-qualified dividends will cost you more than capital gains. At best they will be treated the same as capital gains. Some Ex-div dates are very late, like 12/31. Not sure if any of mine are doing that this year, but I have received dividends in January the next year before. Anyway, tax wise, sell before dividends come. They aren't free.

4. Short term? Hmm, maybe it would be good to wait for dividends. They might cost less, or the same worst case. That does change things. Hopefully they aren't too large at least. Hey, beats paying taxes on <1% interest if you have better gains!

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Old 12-02-2013, 09:31 PM   #3
Recycles dryer sheets
Join Date: Oct 2012
Location: Salt Lake City, UT
Posts: 275
Just some thoughts about how I would approach this problem...

1. Your AAA is independent of portfolio size. So, your AA should be maintained when the selling is complete.

2. Minimizing taxes seems reasonable since the gains will all be short term.

3. Generally, the eft price will decline by the dividend amount when the etf goes ex-dividend. So, timing is not a factor.... However, since the gain is short term and the dividend may be qualified(long term tax rate), you may have a smaller tax bill by selling ex-dividend.

4. Selling now will reduce your stress levels should the market's volatility suddenly reappear... and that is important! When adding money to a portfolio, dollar cost averaging is often recommended. Dollar cost averaging can be employed when drawing down a portfolio as well. Just take care to manage your transaction costs.
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Old 12-03-2013, 02:37 AM   #4
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Join Date: Nov 2013
Location: Los Angeles
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I'm working with my accountant now to determine whether or not to sell in 2013 or 2014 for tax purposes.
The fact that there's only 28 days left in the year will give you the opportunity to split up your gains into this year and next year if you decide that this lowers your taxes.
In addition to working with your accountant you could also try entering hypothetical numbers with TurboTax, which is great as a learning tool even if you don't use it for your taxes. As you add or delete an item you get to see instantly how it affects your taxes.
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