west@mormps.dec.com (08/25/86)
The new tax bill raises everyone's capital gains rate (for people in the 28% bracket, it doubles it). LOTS of people made gains in stock, bond, and mutual fund prices this year. I'm told it is perfectly legal to sell a security and immediately buy it back provided you have made a gain rather than a loss. Today's world of electronic trading allows the two transactions to be timed as close as you like. Thus, anyone can pay this year's capital gains rate rather than next year's for the cost of 2 trades, and the bid/asked spread (typically 1/4 pt). Thus, if the difference in your capital gains tax on a given stock is in excess of about $100, it pays to do this wash-gain-sale this year. (The commissions are also deductible as they are calculated into the net cost of the stock). Sounds too easy - did Congress anticipate that a lot of revenue pegged for next year may be swapped into this year at 1/2 the amount. Is this truly legal?
mandel@well.UUCP (Thomas F. Mandel) (08/27/86)
In article <4979@decwrl.DEC.COM> west@mormps.dec.com writes: >The new tax bill raises everyone's capital gains rate (for people in >the 28% bracket, it doubles it). ... >Thus, if the difference in your capital gains tax on a given stock is >in excess of about $100, it pays to do this wash-gain-sale this year. >... It doesn't necessarily make sense to sell a long-term position, pay capital gains tax at this year's lower rate, and re-buy the same stock. The exception is a stock for which you expect very substantial *future* appreciation. In some instances, it makes greater sense to hold the stock. For instance, if your current long-term capital gains tax would be 14%, and you expect future appreciation in excess of about 150%, hold the stock. (The relevant variables in such an analysis are your current bracket and the amount of gain already received.) Tom Mandel ...!well!mandel mandel@sri-kl.arpa