Author Topic: capital gains - avoid  (Read 4272 times)

james22

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capital gains - avoid
« on: January 08, 2018, 01:01:37 AM »
My elderly father has several million of 3M in taxable.

I'm convinced it is ~20% overvalued:


Yes, 3M is (grossly) overvalued beyond any reasonable doubt.

https://seekingalpha.com/article/413253 ... ke-mistake

3M Is Overvalued.

https://seekingalpha.com/article/413241 ... ter-prices

   Using several valuation models, I find that 3Mís stock price is overvalued...

https://seekingalpha.com/article/413013 ... gs-bargain

   ... 3M's stratospheric valuation.

https://seekingalpha.com/article/412728 ... may-coming


What to do about it?

I'd shift to (fairly valued) BRK, but selling will incur a 20% LTCG tax (the +3.8% has gone away, yes?).

Should I consider the overvaluation to make the tax "free"? Or does the tax make the overvaluation "free"?

Bearing in mind step-up basis would allow later selling without any tax hit, any thoughts?

Thanks.


scorpioncapital

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Re: capital gains - avoid
« Reply #1 on: January 08, 2018, 01:22:30 AM »
The joys of living in a country that taxes capital gains (some don't at all) :)
I would not let tax considerations determine the optimal investment choice.
But one should ask how sure one is of what one believes.

james22

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Re: capital gains - avoid
« Reply #2 on: January 08, 2018, 05:32:50 AM »
1. The 3.8% surcharge still exists,

2. My father had not changed his state of residence as I believed, so still subject to state taxation, and

3. would trigger IRMAA Medicare surcharge.

We'll be holding 3M a while longer...

Cardboard

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Re: capital gains - avoid
« Reply #3 on: January 08, 2018, 05:43:00 AM »
Could selling short term, slightly out of the money covered call be an option?

It would generate income which could be seen as an offset to the eventual taxes on capital gains. And if the stock rallies above the strike price and the stock is called away, this gain on the rally could also be considered as an offset?

Since I don't sense an urgency to sell and little upward potential maybe this could work?

Cardboard

Gamecock-YT

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Re: capital gains - avoid
« Reply #4 on: January 08, 2018, 07:28:22 AM »
Charitable remainder trust

bookie71

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Re: capital gains - avoid
« Reply #5 on: January 08, 2018, 09:51:26 AM »
No easy answer, but remember that when he passes you will get a step up in basis. How is his health?  Many factors should be considered. Watch out for unintended consequences.
Always remember, Pigs get fat and hogs get slaughtered.

maybe4less

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Re: capital gains - avoid
« Reply #6 on: January 08, 2018, 09:55:10 AM »
I believe Ericopoly solved this problem a number of years ago. Open a Portfolio Margin account somewhere (I know Interactive Brokers works), buy puts to cover your appreciated position, and then withdraw cash on margin.

LC

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Re: capital gains - avoid
« Reply #7 on: January 08, 2018, 11:17:13 AM »
FWIW I agree on valuation. I sold my 3M shares over the summer (of course it then ran up another $20/sh so take anything I say with big ole grain of salt)
"Lethargy bordering on sloth remains the cornerstone of our investment style."
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brk.b | cash

benchmark

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Re: capital gains - avoid
« Reply #8 on: January 08, 2018, 09:51:37 PM »
I believe Ericopoly solved this problem a number of years ago. Open a Portfolio Margin account somewhere (I know Interactive Brokers works), buy puts to cover your appreciated position, and then withdraw cash on margin.

Can you elaborate on this or point me to the original post of Ericopoly? I'm trying to figure out a way to hedge the gain on bank stocks.

james22

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Re: capital gains - avoid
« Reply #9 on: January 09, 2018, 12:45:45 AM »
I appreciate the advice, everyone.

My father was inclined to hold anyway for sentimental reasons, so he's happy for the excuse.

And he's an equal sized IRA so can offset the risk there.