Like-Kind Exchange

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Not A Clue

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Dec 31, 2021, 5:37:30 PM12/31/21
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Some foreign stocks trades on the OTC under 2 symbols. e.g. BYDDF and BYDDY are both for BYD Company Ltd. The differences between the two symbols are (1) one is an ADR and the other is for shares on the local market; and (2) the ADR version represents 2 local shares and generally trades at approx. twice the price.

Question: Let's say I own the ADR symbol; can I sell that (at a gain) and buy back the local-share symbol and defer the gain?

If NO, then ignore the balance of this post.

If yes, a further question is: IF I sell, say 500 of the ADR share and buy back 800 of the local-share (=400 ADR shares); do I recognize gains on 100 ADR shares and defer gains on the other 400 ADR shares? If yes, the recognized gains would be 20% of the total gains

TIA

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ira smilovitz

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Dec 31, 2021, 7:53:39 PM12/31/21
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On Friday, December 31, 2021 at 5:37:30 PM UTC-5, Not A Clue wrote:
> Some foreign stocks trades on the OTC under 2 symbols. e.g. BYDDF and BYDDY are both for BYD Company Ltd. The differences between the two symbols are (1) one is an ADR and the other is for shares on the local market; and (2) the ADR version represents 2 local shares and generally trades at approx. twice the price.
>
> Question: Let's say I own the ADR symbol; can I sell that (at a gain) and buy back the local-share symbol and defer the gain?
>
> If NO, then ignore the balance of this post.
>
> If yes, a further question is: IF I sell, say 500 of the ADR share and buy back 800 of the local-share (=400 ADR shares); do I recognize gains on 100 ADR shares and defer gains on the other 400 ADR shares? If yes, the recognized gains would be 20% of the total gains
>
> TIA
>
> --

No. Like kind exchanges (§1031) can only be done with real estate.

Ira Smilovitz, EA
Leonia, NJ

JoeTaxpayer

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Jan 2, 2022, 4:34:33 PMJan 2
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On 12/31/21 7:52 PM, ira smilovitz wrote:
> On Friday, December 31, 2021 at 5:37:30 PM UTC-5, Not A Clue wrote:
>> Some foreign stocks trades on the OTC under 2 symbols. e.g. BYDDF and BYDDY are both for BYD Company Ltd. The differences between the two symbols are (1) one is an ADR and the other is for shares on the local market; and (2) the ADR version represents 2 local shares and generally trades at approx. twice the price.
>>
>> Question: Let's say I own the ADR symbol; can I sell that (at a gain) and buy back the local-share symbol and defer the gain?
>>
>> If NO, then ignore the balance of this post.
>>
>> If yes, a further question is: IF I sell, say 500 of the ADR share and buy back 800 of the local-share (=400 ADR shares); do I recognize gains on 100 ADR shares and defer gains on the other 400 ADR shares? If yes, the recognized gains would be 20% of the total gains
>>
>> TIA
>>
>> --
>
> No. Like kind exchanges (§1031) can only be done with real estate.
>
> Ira Smilovitz, EA
> Leonia, NJ
>

Agreed. I do know there are swaps of Mutual funds, different classes of
the same fund for owners with a certain threshold of investment. A non
taxable event to swap.
I am wondering if there are times an ADR swap has the same tax effect.

ira smilovitz

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Jan 3, 2022, 12:03:49 AMJan 3
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On Sunday, January 2, 2022 at 4:34:33 PM UTC-5, joetaxpayer wrote:
> On 12/31/21 7:52 PM, ira smilovitz wrote:
> > On Friday, December 31, 2021 at 5:37:30 PM UTC-5, Not A Clue wrote:
> >> Some foreign stocks trades on the OTC under 2 symbols. e.g. BYDDF and BYDDY are both for BYD Company Ltd. The differences between the two symbols are (1) one is an ADR and the other is for shares on the local market; and (2) the ADR version represents 2 local shares and generally trades at approx. twice the price.
> >>
> >> Question: Let's say I own the ADR symbol; can I sell that (at a gain) and buy back the local-share symbol and defer the gain?
> >>
> >> If NO, then ignore the balance of this post.
> >>
> >> If yes, a further question is: IF I sell, say 500 of the ADR share and buy back 800 of the local-share (=400 ADR shares); do I recognize gains on 100 ADR shares and defer gains on the other 400 ADR shares? If yes, the recognized gains would be 20% of the total gains
> >>
> >> TIA
> >>
> >> --
> >
> > No. Like kind exchanges (§1031) can only be done with real estate.
> >
> > Ira Smilovitz, EA
> > Leonia, NJ
> >
> Agreed. I do know there are swaps of Mutual funds, different classes of
> the same fund for owners with a certain threshold of investment. A non
> taxable event to swap.
> I am wondering if there are times an ADR swap has the same tax effect.
> --

Different classes of mutual funds aren't swaps or exchanges. You still own the same mutual fund, with the same holdings, - the only difference is that the sponsor adjusts the fees it charges you.

Ira Smilovitz, EA
Leonia, NJ

John Levine

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Jan 3, 2022, 3:12:49 PMJan 3
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It appears that ira smilovitz <ira.sm...@gmail.com> said:
>Different classes of mutual funds aren't swaps or exchanges. You still own the same mutual fund, with the same holdings, - the only difference is that the sponsor adjusts the fees it charges you.

It's a little more complicated than that. Some Vanguard funds are both
conventional funds and ETFs, and they will let you do a one-time
conversion of fund shares into ETFs, also tax free. I presume it's
because they're still a claim on the same bundle of assets.

Funky Tax quirk: most mutual funds do a taxable distribution of realized
capital gains at tne end of each year, but someone noticed that those
Vanguard funds don't.

ETFs work by a system in which wholesale stock brokers pretentiously
known as Authorized Participants can exchange large blocks of ETF
shares for the equivalent bundle of the stocks or bonds that the fund
holds and vice versa. The APs arbitrage the ETF shares against the
fund assets to keep the ETF price the same as the asset value. Mutual
funds have always been allowed to redeem in kind which is treated as
an exchange so it's tax free. This means that an ETF has no capital
gains and your ETF shares are like any other shares, you pay tax only
when you sell them. This also means that ETFs need keep no cash
reserve since they never have to redeem shares for cash.

For the Vanguard funds that have both regular and ETF shares, Vanguard
and some friendly APs arranged to exchange out all the assets they
would otherwise had to sell and exchange in what they would have had
to buy, all without realizing any capital gains. At the moment no
other fund manager does this since Vanguard has a patent on adding ETF
shares to a conventional fund, but when the patent expires in a few
years I expect they'll all do it.

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Regards,
John Levine, jo...@taugh.com, Primary Perpetrator of "The Internet for Dummies",
Please consider the environment before reading this e-mail. https://jl.ly
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