John Bullis: Reasons not to see stock at a gain
January 1, 2013
Who knows what the future holds for listed stock valuations? Will the market grow or fall back or stay about the same? I doubt any one can be sure.
Perhaps the best answer is to hold, that is not sell that stock you have owned for a long time and that has gone up in value more than your cost.
A reason to not sell now is if you live in Oregon, California or other high income tax state but are planning to move to Nevada. Why pay that state income tax?
If you are planning to donate the stock to a church or charity, don’t sell, just give the stock. That avoids you being taxed on the gain. The nonprofit organization can sell the stock and pay zero income tax. You get a charitable deduction if you itemize.
If you already have a lot of capital losses that carryover to 2012 and you expect the carryover to 2013 to be significant, you might not sell the stocks that have gains. Those gains will be offset by the capital losses but the losses may be of even more value to you in the future. Who knows if Congress will raise the capital gains tax rates?
Perhaps you plan on giving the shares to relatives to help them pay education loans, buy a house, etc. Instead of selling, consider giving the stock to the relatives that are at least age 24 or are clearly “on their own” and not your tax dependents. They can sell the stock and your holding period that carries over to them. They can sell the stock at long term capital gains and pay little or no income tax, probably less than you would pay.
If the gain is substantial and you hope to not have to sell it before you die, hold the stock at your death. Your heirs will get a “step up” in tax basis to the fair market value at the time of your death. Neither you nor they will pay a capital gains tax on the increase in value up to the time of death. That “step up” in tax basis takes the place of the cost. It can save a lot of tax for the family.
You could exchange it for a charitable gift annuity. The gain is not taxed and you will receive payments the rest of your life or if it is for you and another person, until you have both died.
Don’t sell if you don’t have long term care insurance and you might need the money someday in the future to pay home health care or nursing home costs. With those expenses increasing each year, it’s hard to know how much might be needed. You will certainly get more sleep in a private room you pay for as compared to a Medicaid room you share with a few others.
Maybe Congress will reduce the capital gains tax rate in the future? I put that last since I don’t think it is likely, but I’d love to be wrong.
Did you hear? “The answers to prayer and many questions are ‘Yes’, ‘No’ and ‘not now'”?
• John Bullis is a certified public accountant, personal financial specialist and certified senior adviser serving Carson City for 45 years. He is founder emeritus of Bullis and Company CPAs, LLC.