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How does taxation on stock portfolios work?

Discussion in 'Business, Careers & Education' started by GreenFrog, May 23, 2011.

  1. maverick

    maverick Senior member

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    If you are really just going to sell it, I *think* it might be better if your uncle sells it and then gives you the cash. That way it least he will get some capital losses to offset any capital gains he might have, which sounds like it disappears if he just transfers it to you. Someone please confirm...
     
  2. GreenFrog

    GreenFrog Senior member

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    If you are really just going to sell it, I *think* it might be better if your uncle sells it and then gives you the cash. That way it least he will get some capital losses to offset any capital gains he might have, which sounds like it disappears if he just transfers it to you. Someone please confirm...

    I don't mean to sound classless, but my uncle is so freaking loaded that the tax advantage he'd get through an offset of around $10K is simply not worth the hurt feelings he might get if I were to ask him to liquidate his years of contribution to this portfolio.
     
  3. maverick

    maverick Senior member

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    Maybe he'll care more than you think if he invested his own portfolio similar to how he did yours...

    And how much less will his feelings be hurt if you accept it and then sell right away?

    Anyway, something to think about
     
  4. Dashaansafin

    Dashaansafin Senior member

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    So your uncle is "loaded" and he dumps a shit portfolio of 10K on you. Very generous of him.
     
  5. Nicola

    Nicola Senior member

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    . If you look at the overall market its back to pre recession levels. If he had just simply bought 1 ETF of the Dow/S&P he would be fine. I dont know why anyone would invest in GM, GE, C, Drug stocks, Phone stocks and call that diversification.


    Those ten stock would have been a third of the Dow 30.

    A large percentage of the SP500.


    BTW the SP500 is still close to 15% below it's all time high.
     
  6. GreenFrog

    GreenFrog Senior member

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    So your uncle is "loaded" and he dumps a shit portfolio of 10K on you. Very generous of him.

    lol well, there's a looooooooonggggg story behind all this.
     
  7. thebac

    thebac Senior member

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    By decent diversification, I would think of at least an S&P 500 fund or ETF (if not a Russell 3000 or even a Wilshire 5000 type). Small investors shouldn't invest too much in individual stocks. While it's true that the S&P 500 is about 15% off its all-time high, his uncle was putting in money over the course of two decades or so, not just during the time that the S&P 500 was riding high, so assuming he put in a roughly constant amount in each month or so, his portfolio should be up quite a bit, and not 50% down unless it wasn't sufficiently diversified.
    Really? GM GE C JNJ,MRK,PFE T,VZ INTC,MSFT 10 of the most widely held stocks by small investors. Small investors who tend to buy what is hot at the moment. The first eight would have been a fairly safe widows and orphans portfolio. The last two market leaders. All Dow30 stocks. So if bought at the highs. GM down 100% GE down over 60% C down over 90% Drug stocks all down heavily Phone stocks all down heavily So are the other two. Hell DIS is down what 10% from it's all time high? The guy had 20K. I think you'll find many small investors who are far far from their all time highs. NB I didn't even include WaMu,Lehman,Wachovia or any of the other problems.
    Those ten stock would have been a third of the Dow 30. A large percentage of the SP500. BTW the SP500 is still close to 15% below it's all time high.
     
  8. AR_Six

    AR_Six Senior member

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    If the portfolio really is in a loss position, I would suggest hanging onto it unless you're pretty sure it's going to continue its downward spiral. A portion of the value is the currently unrealized losses on the portfolio. Depending on the rules where you are, your ability to use those losses to shelter other capital gains is limited. At some point in your life that will be worth something to you - generally, more later, since your income (and therefore the value of the deduction from income) will go up over time.

    And it's ridiculous to suggest that he should just throw away 10k of losses, that could be worth close to 5k in itself to him. For Christ's sake, even if he just gives you the extra 5k, it's worth it. Why would you do that?
     
  9. GreenFrog

    GreenFrog Senior member

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    If the portfolio really is in a loss position, I would suggest hanging onto it unless you're pretty sure it's going to continue its downward spiral. A portion of the value is the currently unrealized losses on the portfolio. Depending on the rules where you are, your ability to use those losses to shelter other capital gains is limited. At some point in your life that will be worth something to you - generally, more later, since your income (and therefore the value of the deduction from income) will go up over time. And it's ridiculous to suggest that he should just throw away 10k of losses, that could be worth close to 5k in itself to him. For Christ's sake, even if he just gives you the extra 5k, it's worth it. Why would you do that?
    I'm in the U.S., so when I receive the portfolio, wouldn't I only be able to shelter myself against capital gains if the portfolio's value goes down further AFTER I receive it? Or do the capital losses since its inception transfer over to me as well?
     
  10. AR_Six

    AR_Six Senior member

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    I'm pretty sure your cost base gets set as of the point of transfer in the US. Someone probably has told you as much. I am not sure whether he gets to realize his notional losses when he gifts it. If so that may be half the reason he's giving it to you. If not, it's a stupid idea, and he should give you cash, then have you buy the assets from him at FMV.

    In answer to your original question, in this circumstance, you could liquidate the portfolio without realizing a gain or a loss, yes.
     
  11. Concordia

    Concordia Senior member Dubiously Honored

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    I'm pretty sure your cost bas[is] gets set as of the point of transfer in the US.

    No.
     
  12. AR_Six

    AR_Six Senior member

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    CB = adjusted cost base up here, though basis is also used, but thanks for a) the correction and b) for informing us all how it actually works, whenever you get around to it - is the ACB to the giftee not FMV as of when the property's transferred? Or is it simply nil? That wouldn't make much sense.

    I am in no way qualified to advise anyone on tax in the U.S.A. except as it pertains to Canadian activities, so we'll add that caveat, but the foregoing was my assumption.
     
  13. pistolero

    pistolero Senior member

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    ACB = adjusted cost base up here, though basis is also used, but thanks for a) the correction and b) for informing us all how it actually works, whenever you get around to it - is the ACB to the giftee not FMV as of when the property's transferred? Or is it simply nil? That wouldn't make much sense.

    I am in no way qualified to advise anyone on tax in the U.S.A. except as it pertains to Canadian activities, so we'll add that caveat, but the foregoing was my assumption.


    Property transferred by gift retains the donor's cost basis in the hands of the recipient. The adjustment to FMV only applies to property transferred via inheritence. Also, the donor does not recognize gain or loss on the portfolio when it's gifted - and since the FMV is less than $13k, the gift itself has no tax consequences to either donor or recipient
     

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