Does It Really Make Sense to Sell My Stocks at a Gain and Immediately Repurchase Them?
November 28, 2012

      After our last newsletter, a number of people asked us - "Does it really make sense to sell my stocks at a gain and immediately repurchase them?"  In 2012, selling and repurchasing your appreciated securities that you intend to sell within the next several years can generate a significant tax benefit for you.  The repurchase will step up your tax basis to the current fair market value at a low 15% tax cost.
     Absent Congressional action, starting in 2013, the maximum rate on long-term capital gains will increase to 
20%. There will also be a new 3.8% Medicare contribution tax that could apply to you, if your joint adjusted gross income exceeds $250,000.  
n this newsletter, we will give you an example that shows the benefits of selling your stocks at a gain in 2012.  

Example: Accelerating Capital Gains
Tax Benefits of Selling in 2012 vs. 2013
     In early 2011, Jim bought 1,000 shares of ABC Co. for $10,000.  Since then, the stock price has increased and is now worth $110,000, with the value holding steady.  It is unlikely that Jim will keep the stock for more than a year or two longer.   
     If Jim sells the stock in late 2012, he will pay $15,000 [($110,000-$10,000) x 15%] in taxes.  If he waited until 2013 to make the sale and the tax rate increases as scheduled to 20%, and he is subject to the 3.8% Medicare surtax, he will pay $23,800 [($110,000-10,000) x 23.8%] in taxes.  
     By selling in 2012, Jim will save $8,800 in taxes, which equates to a 58.7% savings on his $15,000 tax payment for his 2012 tax return vs. his $23,800 tax payment for his 2013 tax return.     
     If Jim thinks that ABC Co.'s stock will continue to appreciate in 2013, he can immediately repurchase the stock.  Therefore, he will step up his tax basis of the stock to the current fair market value of $110,000.

Annualized Rate of Return Table
Recognizing Capital Gains at 15% vs. 23.8% Tax Rate
     The following chart shows the annualized rate of return from the tax savings received from recognizing a capital gain in 2012 at 15% versus in the the future at a 23.8% rate.
     Remember that investment moves should not be made solely to capitalize on the current low capital gains rates. However, if long-term capital gains rates increase next year and you are planning to sell your investments in the near future, you should consider this tax planning strategy.  (Sell stock, recognize gain and IMMEDIATELY buy the stock back)
     With careful planning, we can help you determine whether you would benefit from using long-term capital gain planning strategies this year.  Please contact us with any questions you may have regarding the tax planning strategies discussed in this email, or if you would like more information.
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Soukup, Bush & Associates, P.C.
(970) 223-2727