Our hypothetical Apple investor could place the shares purchased in 2012 in an account with one broker and the 1995 shares at another. Thus, each broker would only have one lot they could sell. The investor could then have the broker with the 2012 holdings sell and hang onto the 1995 shares.
It probably wouldn’t pass muster with the IRS to keep low-basis and high-basis shares in different accounts at the same broker, Nash said. But another workaround may be placing some stock in a family partnership, which is a separate tax entity, he said. Nash cautioned that such suggestions are preliminary given that the bill is in flux.
The capital gains change could inhibit charitable donations of stock, according to Douglas Evans, head of asset management at wealth advisory firm Abbot Downing in San Francisco. Current law gives investors an incentive to donate shares that would trigger a big capital gain if sold. This often benefits non-profits because a gift of stock might be worth $6,000 to an individual after taxes, but $10,000 to a charity.
Sell Now?
“You’re taking away part of the incentive to give to charity, and you’re going to slow down the process," Evans said.
Amid such uncertainty, wealth advisers are modifying their year-end tax advice. Investors with the prospect of hefty capital gains are being advised to consider selling that stock now when they can better control the cost-basis, said Stanley Veliotis, a professor of accounting and taxation at Fordham University.
Willens speculated that the Senate might be trying to simplify investors’ taxes with the change. Still, he said: “People would be more than happy to go through the trouble of identifying which block of stock to sell in order to minimize their taxes."
This article was provided by Bloomberg News.