Archive for the ‘Capital Gains’ Category

Coming Clean on Wash Sales

May 10, 2012
By Kaye A. Thomas

This tax season — the one that just ended for those lucky enough to have filed on time, and the one still painfully dragging on for those who filed for an extension — is the first for which brokers are required to report cost basis, in addition to gross proceeds, on Form 1099-B. An important part of the requirement is that brokers must apply the wash sale rule, which prevents you from claiming a loss on a sale of shares if you buy identical shares within 30 days before or after. Anyone who does a lot of buying and selling might wonder whether the broker applied this rule correctly. You may be surprised to learn that there’s no way to be sure. The wash sale rule is a lot more complicated than it appears, and there are unanswered questions about some aspects of its workings. (more…)

Taxation of ETF Options

May 31, 2011

There are two sets of rules for taxation of options. One set, which might be called the regular rules, applies to options to buy or sell stock in a company. Different rules apply when options qualify as section 1256 contracts. Section 1256 of the Internal Revenue Code offers unique treatment for these options:

  • Capital gain or loss is treated as 60% long-term and 40% short-term without regard to how long you held the option.
  • Any positions you hold at the end of the year are marked to market, which means you report gain or loss based on their current value even though you haven’t sold them.

If you use options in your investment strategy, it may be important to know whether options to buy or sell shares in exchange-traded funds, or ETFs, are treated as regular options or section 1256 contracts. The answer: it depends. (more…)

IRS Heard it Through the Grapevine: Pay Up!

March 14, 2011

Suppose you sell a business for $10,000,000, claiming your basis is $10,000,000 when it’s actually closer to $1,000,000. You’ll have to pay tax on that $9,000,000 difference (plus interest and penalties) if the IRS catches you before the statute of limitations runs out. How long do they have to catch you? The Supreme Court will probably have to step in and resolve this question, which has divided the Courts of Appeals. (more…)

From Our Message Board

December 27, 2010

In a thread discussing broker reporting of basis, Sven offers the following:

Blessed are they who keepeth good records, for they shall prevail against the forces of darkness (their brokers) and evil (the IRS) on the day of final audit.

ETFs and Wash Sales

December 15, 2010

We’re quoted in this article on CNBC.com discussing the use of exchange-traded funds (ETFs) to restore balance in a portfolio during the 31-day waiting period to avoid a wash sale following a stock loss.

Note: Right here of Fairmark.com you’ll find a complete guide to all aspects of the wash sale rule.

Sell Those Bonds

December 6, 2010

Here’s a tax-saving strategy for people who hold appreciated bonds (other than municipals) in a taxable account: sell them, and buy them back. What? Pay tax on my profit now instead of later? Yes. Pay now so that you won’t pay more — possibly a lot more — later. In the right situation, this strategy can pay handsome dividends, even when tax rates are not going up. Any additional savings from avoiding a rate increase are gravy. (more…)

New Capital Gains Rules: Identification

November 4, 2010

New tax rules will require brokers to begin reporting basis and holding period in addition to sales proceeds when you sell stocks and other securities. Regulations implementing this requirement make some changes in the underlying rules for capital gains and losses, and these changes take effect as of January 2011, even though you won’t see basis information on the Forms 1099 you receive in this coming tax season. Here’s a look at how the rules for identifying shares of stock or other securities are about to change. (more…)

Planning for Higher Capital Gains Rates

September 9, 2010

For people in the higher tax brackets, capital gains rates are likely to be higher in the near future. Many investors may wonder whether they should cash gains before the end of the year. Our analysis reveals that this strategy won’t always produce benefits. Paradoxically, some people end up with better results when paying more tax. (more…)

Basis Rules for 2010 Decedents

August 5, 2010

No doubt you’re aware that the estate tax has been repealed, solely for people dying in 2010. It’s less well known that repeal of the estate tax was accompanied by a change in the rules for adjusting the basis of inherited assets. For a description of the rules that apply when you inherit from someone who dies this year, see our new page on basis of property inherited from 2010 decedents.

Stock Loan Treated as Sale

July 23, 2010

The Tax Court has sided with the IRS in a case where they sought to collect over $100 million in taxes from billionaire Philip Anschutz. At issue was a complicated arrangement known as a variable prepaid forward contract, in which Anschutz received cash up front for a sale to occur later. Anschutz loaned the shares that were covered by this contract to the firm providing the up front payment, permitting that firm to sell the shares. The court found that the prepaid contract and the lending arrangement had to be seen as part of a single deal, with the result being that the sale is viewed as taking place at the time of the up front payment rather than later as Anschutz intended. (more…)


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