stock appreciation--avoid gains this way?

34 views
Skip to first unread message

MZB

unread,
May 12, 2021, 11:52:42 AMMay 12
to
Suppose I own 500 sh of XYZ with a large (long term) cap. gain, say $100K.

XYZ is going down along with the market. I am forced to hold XYZ as I
don't want to pay 15%. My thinking is to leave the stock for my children
so they get the stepped up basis.
But can I do the following:

Sell short 500 sh. of XYZ ("against the box"). This will create a
revenue neutral position for any future changes. Buy it back (ie: close
out the short position) when the market changes, taking the gain/loss on
the short position.

Mel

--
<< ------------------------------------------------------- >>
<< The foregoing was not intended or written to be used, >>
<< nor can it used, for the purpose of avoiding penalties >>
<< that may be imposed upon the taxpayer. >>
<< >>
<< The Charter and the Guidelines for submitting posts >>
<< to this newsgroup as well as our anti-spamming policy >>
<< are at www.asktax.org. >>
<< Copyright (2011) - All rights reserved. >>
<< ------------------------------------------------------- >>

JoeTaxpayer

unread,
May 12, 2021, 3:42:57 PMMay 12
to
On 5/12/21 11:49 AM, MZB wrote:
> Suppose I own 500 sh of XYZ with a large (long term) cap. gain, say $100K.
>
> XYZ is going down along with the market. I am forced to hold XYZ as I
> don't want to pay 15%. My thinking is to leave the stock for my children
> so they get the stepped up basis.
> But can I do the following:
>
> Sell short 500 sh. of XYZ ("against the box"). This will create a
> revenue neutral position for any future changes. Buy it back (ie: close
> out the short position) when the market changes, taking the gain/loss on
> the short position.
>
> Mel
>

From
https://www.investopedia.com/terms/s/sellagainstthebox.asp#:~:text=A%20short%20sell%20against%20the%20box%20is%20the%20act%20of,losses%20and%20net%20to%20zero.

The Taxpayer Relief Act of 1997 (TRA97)
https://www.investopedia.com/terms/t/taxpayer-relief-act-of-1997.asp no
longer allowed short selling against the box as a valid tax deferral
practice. Under TRA97, capital gains or losses incurred from short
selling against the box are not deferred. The tax implication is that
any related capital gains taxes will be owed in the current year.

Taxed and Spent

unread,
May 12, 2021, 7:28:11 PMMay 12
to
On 5/12/2021 12:41 PM, JoeTaxpayer wrote:
> On 5/12/21 11:49 AM, MZB wrote:
>> Suppose I own 500 sh of XYZ with a large (long term) cap. gain, say $100K.
>>
>> XYZ is going down along with the market. I am forced to hold XYZ as I
>> don't want to pay 15%. My thinking is to leave the stock for my children
>> so they get the stepped up basis.
>> But can I do the following:
>>
>> Sell short 500 sh. of XYZ ("against the box"). This will create a
>> revenue neutral position for any future changes. Buy it back (ie: close
>> out the short position) when the market changes, taking the gain/loss on
>> the short position.
>>
>> Mel
>>
>
> From
> https://www.investopedia.com/terms/s/sellagainstthebox.asp#:~:text=A%20short%20sell%20against%20the%20box%20is%20the%20act%20of,losses%20and%20net%20to%20zero.
>
> The Taxpayer Relief Act of 1997 (TRA97)
> https://www.investopedia.com/terms/t/taxpayer-relief-act-of-1997.asp no
> longer allowed short selling against the box as a valid tax deferral
> practice. Under TRA97, capital gains or losses incurred from short
> selling against the box are not deferred. The tax implication is that
> any related capital gains taxes will be owed in the current year.
>


are options an option?

MZB

unread,
May 12, 2021, 7:28:11 PMMay 12
to
On 5/12/2021 3:41 PM, JoeTaxpayer wrote:
> On 5/12/21 11:49 AM, MZB wrote:
>> Suppose I own 500 sh of XYZ with a large (long term) cap. gain, say
>> $100K.
>>
>> XYZ is going down along with the market. I am forced to hold XYZ as I
>> don't want to pay 15%. My thinking is to leave the stock for my
>> children so they get the stepped up basis.
>> But can I do the following:
>>
>> Sell short 500 sh. of XYZ ("against the box"). This will create a
>> revenue neutral position for any future changes. Buy it back (ie:
>> close out the short position) when the market changes, taking the
>> gain/loss on the short position.
>>
>> Mel
>>
>
> From
> https://www.investopedia.com/terms/s/sellagainstthebox.asp#:~:text=A%20short%20sell%20against%20the%20box%20is%20the%20act%20of,losses%20and%20net%20to%20zero.
>
>
> The Taxpayer Relief Act of 1997 (TRA97)
> https://www.investopedia.com/terms/t/taxpayer-relief-act-of-1997.asp no
> longer allowed short selling against the box as a valid tax deferral
> practice. Under TRA97, capital gains or losses incurred from short
> selling against the box are not deferred. The tax implication is that
> any related capital gains taxes will be owed in the current year.
>

KILLJOY!

Thanks for the info.
So that method was eliminated 24 years ago.
I missed the memo

On the positive side, I'm pleased I remembered the concept!!!

I would buy puts, but the stock is too volatile so the premiums are too
high!

Mel

Taxed and Spent

unread,
May 13, 2021, 10:59:09 AMMay 13
to
You might short sell a "comparable" equity. Not exactly guaranteed
though. Are Walgreens and CVS "comparable"? In some ways yes, in some
ways no . . .

Tom Russ

unread,
May 13, 2021, 1:39:19 PMMay 13
to
On Thursday, May 13, 2021 at 7:59:09 AM UTC-7, Taxed and Spent wrote:
> On 5/12/2021 4:26 PM, MZB wrote:
> > On 5/12/2021 3:41 PM, JoeTaxpayer wrote:
> >> On 5/12/21 11:49 AM, MZB wrote:
> >>> Suppose I own 500 sh of XYZ with a large (long term) cap. gain, say
> >>> $100K.
> >>>
> >>> XYZ is going down along with the market. I am forced to hold XYZ as I
> >>> don't want to pay 15%. My thinking is to leave the stock for my
> >>> children so they get the stepped up basis.

It certainly sounds like you may have reasons to want to sell XYZ that are
independent of the tax issues. You may not want to have your investment
decisions driven primarily by tax considerations, particularly if you believe
there is a better investment that will more than make up for the 15% tax rate.

And a 15% tax rate on capital gains is quite low, both in absolute terms and
certainly historically. Figuring out future tax changes is, of course, unknowable
but it seems more likely that the capital gains tax rate will go up rather than
down, given the current historically low rates.

So it may be wiser to decide if you really want to keep XYZ until death or if
it would make more sense to switch to another investment instead. But paying
15% on 100k of gain may be a better wealth-building move than paying 0% on 50k
of gain if you believe that the stock price will be heading lower than other
available investments.
Reply all
Reply to author
Forward
0 new messages