How to handle appreciated investments in the bull market

Posted at 5:00 PM, May 28, 2019
and last updated 2019-05-28 17:00:18-04

We are 10 years into this bull market, chances are you might have some highly appreciated investments.

Carl Carlson, CEO of Carlson Financial talked about some strategies for unwinding those investments and keeping the taxes to a minimum.

One problem with having highly appreciated investments is that when one of those positions is sold, you need to pay taxes on the gain. For many people who sell their appreciated stocks they might not be taking anything out of the account, or even if they do, they fail to set anything aside to pay the taxes on those gains.

There are not ways to avoid paying the taxes, but ways to manage paying the taxes. The only way to avoid paying the taxes would be to not sell the position in the first place, but that’s not necessarily practical and might result in the portfolio being unbalanced, Carlson said.

An optimal way to offset your taxes is to realize some capital losses which offset the gains dollar for dollar. So if you have a dog in your account, maybe GE, and can sell it at a loss, that’s one way to minimize a taxable gain.

If you can not utilize any capital losses? One thing someone could do is set a “capital gains budget,” meaning you determine the amount of gains you are comfortable with realizing in a given year – perhaps targeting to stay under the threshold for the next capital gains tax bracket, Carlson said.

If one has charitable intentions, it could also be advantageous to use a “donate and replace” strategy. This allows you to leverage the tax preferences of contributing appreciated securities for a tax deduction (and eliminating the capital gains altogether) and then replacing the investment (as a new higher cost basis) with the cash that would have been donated in the first place!

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