[OP]
Contributor
A simple and very stupid question. If I buy say $100,000 worth of a stock and it goes up in value. If I sell some portion of the same stock for $100,000 in under one year do I owe any capital gains tax at all?
What happens to the remainder if I sell it 13 months after purchase will it have a zero cost basis to calculate the gains then? What if it goes down instead.
Bil lD
Contributor
You would be best informed on all the issues involved by talking to a tax professional.
There may be a difference between short term holding vs long term holdings.
My understanding as far as what you pay taxes on is the sale price of the shares sold minus the cost of the shares when purchased.
If the price is down when you sale you may be able to use the loss as an offset on other income.
This is why you should talk to a tax professional. Seeking answers from people like me may get you not only outdated information it may be information that could earn you a residence at club fed.
If a person can invest $100,000 in the stock market, they should be able to invest a few hundred for an accountant to make sure their taxes are prison proof.
jtk
"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."
- Sir Winston Churchill (1874-1965)
Contributor
If this is a real situation Jim's advice is golden!
Assuming a hypothetical situation, there are a few things I remember that'll give you an idea about the tax liability.
First you owe tax on the shares you sell. What tax depends on how long you held the stocks before selling, at one point less than a year was taxed ordinary income and over was long-term capital gains taxed at lower rate. (The holding period is one of the revenue knobs they can turn without "raising taxes", so don't trust it hasn't changed!)
So, if your $100K doubled and you then sold half, or $100K worth, you'd owe tax on $50K, (i.e. $100K sale less $50K cost,) and still have $100K of stock with a $50K cost (or basis.)
PS- it's a *LOT* more complicated if you didn't buy all of the shares at the same price, which is what would happen with a regular monthly purchase instead of a lump sum purchase at one point.
Member
Contributor
Depends how you invested it. IRA, 401K, Roth version of each, or a regular brokerage account not covered by a tax deferred account.
You owe tax on profits. You can subtract any brokerage fees for buying and selling from the profits also.
Confidence: The feeling you experience before you fully understand the situation
Member
I highly recommend the J.K. Lasser books, e.g. https://www.amazon.com/J-K-Lassers-Y...dp_ob_title_bkOriginally Posted by Bill Dufour
It’s 12 bucks, and very comprehensive. Good quarantine reading, especially right now!
For an investment made in 2021, who knows, as the tax laws may change yet again.
Contributor
That is something you can bet on.For an investment made in 2021, who knows, as the tax laws may change yet again.
jtk
"A pessimist sees the difficulty in every opportunity; an optimist sees the opportunity in every difficulty."
- Sir Winston Churchill (1874-1965)
Contributor
I would read up on it as others have suggested if for no other reason than knowing the tax implications of investing is better known up front for future decisions. I have done the capital gain thing myself quite a few times with no problems. If after educating yourself, if you still aren’t sure hire a tax professional. Worth it for your peace of mind and future hassles.
[OP]
Contributor
Thanks for the responses. i learned from them that I made a mistake when I cashed out my stocks when the pandemic hit. I bought them back in a few months after they bottomed out so I did make money that way. If I sell them now I would have to pay income taxes on the gains which will also push any long term sales into a higher tax bracket.
For my situation it looks like it will be a good idea to use the stock as collateral to get a loan to buy the new house. Then pay off most of the loan when we sell the old house and wait a few months until the stocks go long term to sell them to pay off the rest of the loan. Paying about 8% annual interest for a few months is better then paying about 30% in Federal + state taxes.
Bill D
My friend's daughter is an account for a national tax firm. I will talk to her to make sure. My Schwab brokerage office is closed for the duration and I needed an answer before new years. That is why I asked here to get some background so I had some idea what to ask her.
Last edited by Bill Dufour; 12-26-2020 at 1:27 PM.
Contributor
Ever hear of a web site: "IRS.GOV"?
Contributor
Last time I had a mortgage it was 3%. (2011) The construction loan was around 4% 2 years ago. 8% even for a short term seems very high. I see they are currently advertising 15 year mortgages here at a little over 2% and 30 year close to 3% in my area. Everything must be more expensive out there. As for the stocks it sounds like you've received some good advice but only your tax person can tell you absolutely where the chips will land.
Contributor
I have read that a bank will never give anything close to current market value for a stock used as collateral and may not accept it at all.
My three favorite things are the Oxford comma, irony and missed opportunities
The problem with humanity is: we have paleolithic emotions; medieval institutions; and God-like technology. Edward O. Wilson
Contributor
Yes I have.
Member
Whatever brokerage you use is required to send you a summary of all short term, long term etc gains and losses. Basically, money made in investments in less than a year has more tax liability. The standard deduction these days is what, about 24k vs a few thousand from decades past so remember that icing on the cake.
[OP]
Contributor
I agree the 8% interest is high but for a loan lasting under one year I think it makes sense in my situation. no prepayment penalty, no assessment fee, no points, no loan origination fees, no document fees. I do not think there are even any notary fees.
Of course the loan interest is probably not deductible.
Bill D.
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