Tax Loss Harvesting Offsets Real Estate Gain
The Situation:
A client received an offer on a piece of raw land they had held for almost 20 years. Long term gains on this property were $800,000; no interest in a 1031 tax exchange strategy.
The Strategy:
Use the markets’ volatility to carefully tax loss harvest securities to meet the $800,000 tax offset goal.
The Actions:
1. By working throughout the year in market-based traunches, we harvest losses in global equites to realize ~($648,000) and in Muni Bonds ~ ($230,000) for a total of ~($878,000).
2. After realization, funds are invested into an ETF (Exchange Traded Fund) for 31 days for satisfaction of the wash sale rule and then rebalanced and reinvested in the original strategy. This allows the funds to stay invested to take advantage of periodic upticks in the bear market.
3. The rising rate environment enabled yield pick up in the Muni portfolio
Concentration Risk with Large Unrealized Gains
The Situation:
A philanthropic client had concentrated legacy holdings with long term gains; they seek diversification.
The Strategy:
Use a combination of 2022 tax loss harvesting coupled with a Charitable Remainder Trust (CRT) to reduce tax burden
The Actions:
1. Throughout the year, realize losses and gains to meet client’s 2022 taxable gain budget of $250,000
2. $1,560,000 in long term gains were realized and offset by ($1,360,000)=+$200,000 to meet the client’s tax goal of not more than $250,000 in gains.
3. Shares with unrealized gains of $2.2 million were contributed to the CRT. Remainder beneficiary is a 501( c ) 3 and this nonporift will receive about that original value in 15 years at grantors expected passing.
4. Clients received a current year income tax deduction of ~$810,000 They are the income beneficiaries of the CRT with annual distributions of about $160,000 (estimated 15 year income payment to grantor $2.37 million)
Desire to fund grands education, remove some assets from estate
The Situation:
Client values education and creating self-sufficiency for future generations.
The Strategy:
Super fund 529 College Funds for Grands-$160k per grandchild
The Actions:
1. Align values with gifting; as grands age, communicate the purpose and values of the gift.
2. Tax laws in 2022 allow for a five year contribution to a 529 in a single year up to $160,000 (for couples filing jointly per grandchild or child) without triggering federal (and sometimes state) gift taxes. When contributed in infancy with 18 years of compound growth @6% in each account will result in a per account balance of $469,883 about $180,000 more than using monthly contributions over the life of the student.
3. With five grandchildren, this married filing jointly client can fulfill their values goal and transfer $800,000 out of their taxable estate in this simple move.
Lawyer retires from practice; shift to accessing portfolio
The Situation:
Client retires from firm and engages in part-time consulting work with former client for two years. After step down from full time work, client is ready to fully retire.
The Strategy:
We migrate the portfolio’s risk and asset allocation to meet income targets by moving from a growth and income allocation to provide income targets.
The Actions:
1. Purchase an immediate annuity to provide guaranteed overlay to social security
2. Overweight value equities into high dividend strategy; add call writing for additional income
3. Maintain bond ladder for predictable income
4. Take advantage of high interest money market rates
5. Use Roth income in early years while spouse is still working and income is high
Philanthropic retired energy executive targets giving $45k/year
The Situation:
Client has been making cash gifts to favorite charities. A few years ago, the annual record keeping revealed that the cash gifts were almost triple her budget.
The Strategy:
We helped the client define the charitable focus and discussed more efficient ways for lifetime giving.
The Actions:
1. Establish a Donor Advised Fund (DAF) which allows a tax deduction in the same year as the gift to the DAF. Decisions about charitable recipients can happen at any time.
2. Gift appreciated shares rather than cash.
3. After age 70 1/2, began taking advantage of Qualified Charitable Distributions (QCDs) from the IRA up to $100,000/year. When applicable, these QCDs can satisfy the RMD requirement.
4. The result is that client spent less after tax money due to avoiding cap gains taxes and income taxes while the charity received the same gift.