Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

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somanyquestions
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Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

Post by somanyquestions » Thu May 10, 2018 2:46 pm

I would like to sell some stock to raise about $50,000 in my taxable account. I could sell shares purchased recently which have appreciated about 10% or I could sell shares purchased more than a year ago which have appreciated 30% or more. I want to do this in order to build a greater cash/municipal bond cushion -- I'm 55 and am only 12% in bonds.

I don't have a strong opinion as to which shares I'd like to keep in my portfolio -- Bogleheads would no doubt have me ditch the short term stock since they are individual shares -- Adobe and ResMed (medical device maker) -- I bought these because I use and am greatly impressed by their products (photography software and CPAP machine). I know I should have purchased bonds instead but that's been done.

Long term shares I would sell would be either total world ex US (I own a good bit of this also in non-taxable) or a Fidelity healthcare sector ETF. I also have ETFs and individual stocks purchased before 2016 which have appreciated by 100% - 200% but assume it makes no sense to sell those shares. I would prefer analysis to focus on tax implications, not which stock belongs in my portfolio.

I will likely be in highest tax bracket or close to highest bracket this year. I believe I will eventually be in a significantly lower tax bracket.

I have stockpiled about $7000 in losses, a mix of short term and long term, and would certainly prefer not to use up these losses as I have over $3000 in taxable dividend income a year. Selling the long term gainers would pretty much use up my losses. I'm pretty good about harvesting losses but pickings have been slim of late (let's hope things stay that way).

Another possibility is to not sell anything and just send any new money into bonds. My income is highly variable but I might have another $25,000 taxable to steer in that direction this year, and maybe $50,000 taxable next year. I have 20% bonds in my traditional 401k and 0% bonds in my Roth and about 20% bonds in taxable.

Thank you for your thoughts!

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Re: Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

Post by oldcomputerguy » Thu May 10, 2018 3:58 pm

Long-term capital gains are taxed at a lower rate than short-term gains. If you're looking solely at tax consequences, I don't see why you would not want to sell some of the shares held longer than one year.
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Re: Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

Post by House Blend » Thu May 10, 2018 9:06 pm

somanyquestions wrote:
Thu May 10, 2018 2:46 pm
I have stockpiled about $7000 in losses, a mix of short term and long term, and would certainly prefer not to use up these losses as I have over $3000 in taxable dividend income a year. Selling the long term gainers would pretty much use up my losses. I'm pretty good about harvesting losses but pickings have been slim of late (let's hope things stay that way).

Another possibility is to not sell anything and just send any new money into bonds. My income is highly variable but I might have another $25,000 taxable to steer in that direction this year, and maybe $50,000 taxable next year. I have 20% bonds in my traditional 401k and 0% bonds in my Roth and about 20% bonds in taxable.
You have carryover losses that are enough to cover the gains, so selling the short term shares is a no-brainer.

Sell less if you have other cash flow, including dividends, available to direct towards the intended fixed income investments.

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Re: Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

Post by livesoft » Fri May 11, 2018 3:08 am

It's a math problem that only you have the information to solve. I suppose the idea is to pay the minimum tax rate on any gains that you realize (after offsetting losses) while still getting the amount of money you want to buy the new investments (bond fund shares).

The solution might probably be to sell some short-term shares and some long-term shares.
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Re: Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

Post by Longdog » Fri May 11, 2018 5:38 am

When I read the subject I thought it was going to be a question of the form, “all else being equal, which is better?” but in your scenario all things are not equal so I don’t think the basis for selling the shares should be long term vs short term gains. I think it should be based on which investments you want to continue to hold and in what proportions. If you are too heavily weighted in a particular stock or stocks, those are the ones you should sell. Taxes are one thing. Concentration risk is another.
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Re: Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

Post by 3funder » Fri May 11, 2018 5:58 am

Longdog wrote:
Fri May 11, 2018 5:38 am
When I read the subject I thought it was going to be a question of the form, “all else being equal, which is better?” but in your scenario all things are not equal so I don’t think the basis for selling the shares should be long term vs short term gains. I think it should be based on which investments you want to continue to hold and in what proportions. If you are too heavily weighted in a particular stock or stocks, those are the ones you should sell. Taxes are one thing. Concentration risk is another.
+1

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Re: Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

Post by FoolMeOnce » Fri May 11, 2018 7:25 am

[Edit: bad math removed]

(If the AMT or NIIT are relevant to you, the numbers may be different)
Last edited by FoolMeOnce on Fri May 11, 2018 10:06 am, edited 2 times in total.

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Re: Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

Post by House Blend » Fri May 11, 2018 9:55 am

FoolMeOnce wrote:
Fri May 11, 2018 7:25 am
From The numbers you gave, it sounds like selling the short term assets will generate less of a tax hit (~$1660) than the long term assets (~$2300) to liquidate $50k. This will, in turn, use up less of your carried losses, allowing you to use more against your ordinary income.
Huh? The way I read the OP, s/he has $7,000 in carryover losses, and can raise $50K by selling shares with a short term gain of (0.1/1.1)*50K = $4.5K, or other shares with a long term gain of (at least) (0.3/1.3)*50K = $11.5K, or some combination of the two.

Selling the short term shares has 0 tax costs, and leaves a $2,500 deduction that can be claimed against ordinary income. Perhaps a 37% = $925 tax savings.

Selling the long term shares leaves a net LTCG of $4,500, and @ 23.8% would cost $1070 in extra taxes.

I agree with longdog that the allocation of the underlying securities may be a significant consideration.

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Re: Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

Post by FoolMeOnce » Fri May 11, 2018 10:05 am

House Blend wrote:
Fri May 11, 2018 9:55 am
FoolMeOnce wrote:
Fri May 11, 2018 7:25 am
From The numbers you gave, it sounds like selling the short term assets will generate less of a tax hit (~$1660) than the long term assets (~$2300) to liquidate $50k. This will, in turn, use up less of your carried losses, allowing you to use more against your ordinary income.
Huh? The way I read the OP, s/he has $7,000 in carryover losses, and can raise $50K by selling shares with a short term gain of (0.1/1.1)*50K = $4.5K, or other shares with a long term gain of (at least) (0.3/1.3)*50K = $11.5K, or some combination of the two.

Selling the short term shares has 0 tax costs, and leaves a $2,500 deduction that can be claimed against ordinary income. Perhaps a 37% = $925 tax savings.

Selling the long term shares leaves a net LTCG of $4,500, and @ 23.8% would cost $1070 in extra taxes.

I agree with longdog that the allocation of the underlying securities may be a significant consideration.
Yes, I made a mistake by posting too early in the morning. I was applying the carry-over losses to the taxes owed on the gains (assuming 37% ordinary rate and 20% LTCG rate) rather than to the gains themselves. I'll edit that post.

somanyquestions
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Re: Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

Post by somanyquestions » Fri May 11, 2018 12:34 pm

Thanks to all of you, this is quite helpful.

bradpevans
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Re: Better to Sell Shares appreciated 10% for Short Term Gain or Shares appreciated 30+% for Long Term Gain?

Post by bradpevans » Fri May 11, 2018 12:55 pm

somanyquestions wrote:
Fri May 11, 2018 12:34 pm
Thanks to all of you, this is quite helpful.
In the short run higher gain means higher taxes

IF you expect your income to drop later that could move your LTCG rate to zero. That is when you would want to take the bigger gain

On the losses,first they offset gains, then income (up to the $3000/year). So, they are more valuable in years without gains: offset income (assuming your marginal rate is > 15%)

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