younginvestor2013
Recycles dryer sheets
- Joined
- Feb 6, 2013
- Messages
- 226
http://www.early-retirement.org/forums/f28/sell-equities-due-to-potential-home-purchase-69384.html
As you may recall, I am thinking of purchasing a home in the spring. I posted in the thread above about liquidating part of my portfolio to cover for a down payment. As it stands now, only about 2.5% of my non-retirement portfolio is cash. Most of my gains (no losses) are not long term until the last week of March and first week of April 2014. With the hindsight that I’d buy in May of 2014, perhaps I may not have invested in so many securities in 2013. However, the short term gains as of today represent 12.7% appreciation on my cost basis.
In talking with my accountant, my net federal (28%) and state (5%) tax due on short term gains is 33% (ordinary income). If I can wait until the gains are long-term (late March/early April), the gains become long term….and the tax due would be 15% (federal) and 5% (state). This represents a delta of 13% between short term gains and long term gains, if I wait until April to sell.
He also suggested looking into borrowing cash from my broker on margin by leveraging my brokerage account balance. This seems a viable option, as I can repay the money quickly once the gains become long term. However, if the market tanks, it appears there are inherent risks in borrowing on margin, which could cause a domino effect.
It seems to me my options for raising cash needed for a potential May 2014 closing date are as follows:
1. Sell securities while the market is still doing well, and I still have unrealized gains. Pay the 33% net tax (13% more if I had waited), and count my blessings that I have the cash ready for downpayment. Looking at it from the “glass is half full” perspective, my net-after tax gain (if I sold today) would still be 8.5% for the year on shares sold.
2. Take the risk to wait until first week of April to sell. Pay 20% net tax (13% less than selling now). Potentially ride an even more up-climb in Q1 2014, and make out better from a tax perspective, too.
3. Look into the margin loan. Vanguard’s rate appears to be around 6.5% APR charged daily, (so about 0.54% a month). I need to do more research on this as it appears there are tax deductions on the interest paid. However, if the market tanks in the 1 to 4 month time frame that I need the cash, it seems this option might not be great.
4. Do nothing now, and wait to see how the market shakes out in Q1 2014. If things are neutral/positive, and it looks like I can sell in early April 2014 without big losses, then sell and buy a place. If the market’s bad, then wait and rent another year. However, this delays my buying for another year and subsequently having to deal with likely higher interest rates in 2015.
Thoughts? Comments? What would you do??
As you may recall, I am thinking of purchasing a home in the spring. I posted in the thread above about liquidating part of my portfolio to cover for a down payment. As it stands now, only about 2.5% of my non-retirement portfolio is cash. Most of my gains (no losses) are not long term until the last week of March and first week of April 2014. With the hindsight that I’d buy in May of 2014, perhaps I may not have invested in so many securities in 2013. However, the short term gains as of today represent 12.7% appreciation on my cost basis.
In talking with my accountant, my net federal (28%) and state (5%) tax due on short term gains is 33% (ordinary income). If I can wait until the gains are long-term (late March/early April), the gains become long term….and the tax due would be 15% (federal) and 5% (state). This represents a delta of 13% between short term gains and long term gains, if I wait until April to sell.
He also suggested looking into borrowing cash from my broker on margin by leveraging my brokerage account balance. This seems a viable option, as I can repay the money quickly once the gains become long term. However, if the market tanks, it appears there are inherent risks in borrowing on margin, which could cause a domino effect.
It seems to me my options for raising cash needed for a potential May 2014 closing date are as follows:
1. Sell securities while the market is still doing well, and I still have unrealized gains. Pay the 33% net tax (13% more if I had waited), and count my blessings that I have the cash ready for downpayment. Looking at it from the “glass is half full” perspective, my net-after tax gain (if I sold today) would still be 8.5% for the year on shares sold.
2. Take the risk to wait until first week of April to sell. Pay 20% net tax (13% less than selling now). Potentially ride an even more up-climb in Q1 2014, and make out better from a tax perspective, too.
3. Look into the margin loan. Vanguard’s rate appears to be around 6.5% APR charged daily, (so about 0.54% a month). I need to do more research on this as it appears there are tax deductions on the interest paid. However, if the market tanks in the 1 to 4 month time frame that I need the cash, it seems this option might not be great.
4. Do nothing now, and wait to see how the market shakes out in Q1 2014. If things are neutral/positive, and it looks like I can sell in early April 2014 without big losses, then sell and buy a place. If the market’s bad, then wait and rent another year. However, this delays my buying for another year and subsequently having to deal with likely higher interest rates in 2015.
Thoughts? Comments? What would you do??