Tax Implications of Selling Stock Before Year's End?

[jdt1661]

My wife and I are currently saving up for a down payment on a house. We have roughly $20K already saved with a $30K target. We expect to purchase a home any time in the next 2 years so I would like to the funds readily available and SAFE. In addition to the $20K I have about $11K of Janus funds stock my dad started for me when I was a kid and I'd like to use this to complete our savings goal. I have never owned stock outside of Vanguard retirement funds and have therefore never had to deal with capital gains and other tax implications of cashing in stock.

My questions are what tax consequences will I incur by cashing in this stock before year's end? And does anyone have recommendations for where to put the funds? I'm currently planning on putting the funds into my online Ally account. A little more background info:

1) Cashing in the stock will not put me into a higher tax bracket
2) My family carries very little debt - mortgage only and a small car payment - and now CC balances

Thanks in advance!

[Taylor Larimore]

Jdt:

Welcome to the Bogleheads Forum!

My questions are:

What tax consequences will I incur by cashing in this stock before year's end?

If received as a gift, you will ordinarily pay a capital-gain tax on any profit based on the original purchase price paid by your dad. If inherited, you will pay a tax on any profit since date of death.

And does anyone have recommendations for where to put the funds?

Money needed "to purchase a home any time in the next 2 years and readibly available" should not go into stocks. I would consider ANY low-cost, short-term, good quality, diversified bond fund.

Best wishes
Taylor

[livesoft]

If you have owned these Janus funds for a while, haven't you been paying taxes on the distributions that you have received from them over the years? That is, you have been filling out Form 1040 Schedule B and perhaps Schedule D, all along, right?

The reason I ask is because I think your answers will help frame responses to your questions better.

[sscritic]

I have about $11K of Janus funds stock my dad started for me when I was a kid

Version 1: In his own account and just last week he gave you a gift of the shares; ask him for the basis.*
Version 2: In a UTMA account and just last week you turned 18 and he turned them over to you.
Version 3: ???

* you need more than the basis, but if these shares weren't a gift, then the other details are irrelevant.

[kaneohe]

Have you been reinvesting dividends & cap gains?

[jdt1661]

Thanks for the responses everyone. A few points of clarification:

1) The stock was a gift from my dad in May of 2009
2) All interest and dividends have are set up to reinvest automatically

[livesoft]

Is this a "stock" or is a mutual fund or mutual funds?

So your 2009, 2010, and 2011 tax returns have the numbers from the 1099s for these investments?

Many people erroneously believe that if they give something like stock shares or mutual fund shares to someone like a child that the basis is the value of the shares on the day they give the shares. That is not correct.

So if you sell the thing (stock? mutual fund?) before year end you will have to learn from your parent how much they paid for the shares that he gave you. That can start some of the calculations for your basis. This will all get reported on your tax return and you will have to pay capital gains tax if you have net gain. You pay the tax either when you file your Form 1040 for 2012 next year (most likely) or you can make an estimated tax payment in by the deadline coming up in January or you can increase your income tax withholding on your last paycheck of 2012 (less likely).

[JustinR]

Sorry to hijack the thread, but along the same lines...

I'm set to rebalance next week (last week of Dec). This would entail exchanging some funds and POSSIBLY contributing new money. Should I just wait til January 1?

Just looking for a simple answer, thank you in advance.

[livesoft]

There can be no simple answer because you didn't give enough information about why you need to rebalance and whether this is taxable account or not. I wait until an RBD to rebalance and do not rebalance based on a date on the calendar.

[sscritic]

So if you sell the thing (stock? mutual fund?) before year end you will have to learn from your parent how much they paid for the shares that he gave you. That can start some of the calculations for your basis.

Even if you don't sell until later, you need to know your father's basis. You also need more than that:

To figure the basis of property you receive as a gift, you must know its adjusted basis (defined earlier) to the donor just before it was given to you, its FMV at the time it was given to you, and any gift tax paid on it.

http://www.irs.gov/publications/p551/ar ... 1000257001

Assuming no gift tax was paid, you need to know its value on the day he gave it to you as well as his basis. Your basis depends on whether he was holding a winner (FMV greater than basis) or a loser (FMV less than basis). See the IRS link.

[JustinR]

There can be no simple answer because you didn't give enough information about why you need to rebalance and whether this is taxable account or not. I wait until an RBD to rebalance and do not rebalance based on a date on the calendar.

Sorry. Both taxable and retirement. I rebalance across my entire portfolio. I do rebalance based on a calendar.

Just wondering if I should just wait until next year since it's so close anyways?

I will probably only contribute new money (BUY in taxable) and move things around in the 401k. I probably won't SELL anything in the taxable.

[livesoft]

You should definitely sell that "Janus funds stock" or whatever it is. Or give it away to charity. It is probably actively-managed, causes you extra taxes, has a high expense ratio, has performed poorly, and doesn't match your asset allocation plan. Just because it was given to you is no reason to keep it. Sell it now while you can still figure out the cost basis and clean up your portfolio.