Money Talks: To buy or sell? A taxing situation

William F. Hague

Certainly for investors here in paradise, the concept of whether to buy or sell remains on the forefront as the real estate market continues to keep pace with the stock market looking as if both will grow to the sky. However, the question begins to creep into investors psyches as to when to capture some of the profits as values continue to grow. Capturing growth can be equally as important as the ability to achieve grow both long and short term.

Clarity and rationale has become increasingly fleeting as investors attempt to digest the unprecedented stock market rally now well into the 8th year. At some point many retired investors who have clear memories dating back to the 2009 market crash will begin to seriously consider when and how much profit to capture in order to truly capitalize on this record setting stock market run. For many, the issue of taxable events will arise as a critical variable to consider.

The majority of retired investors can enjoy the luxury of holdings which have been held over 12 months. Of course, 12 months is the magical number when it comes to computing capital gains taxes as we capture the stock market gains going forward. In fact, the 12 month deadline between long term gains and short term gains taxes doomed many real estate speculators in back in 2006 when the housing market turned on a dime and literally left many last minute buyers holding the proverbial “bag”. In an effort to maximize profits, many of the late buyers during the real estate boom / bust were blindsided when trying to capitalize on the magic 12 month period in order to take advantage of the lower tax rate. This waiting period proved to be a critical mistake for many property investors as the market plunged nearly as quickly as it rose … a taxing situation indeed.

Fortunately for most traditional stock investors, the ability to capitalize on the discounted long term capital gains rate is an easy target at this juncture. For speculative investors who may have entered the market during the last 12 months, the temptation to take short term gains can be a vexing situation as far as profitability. Here is where investors must decide just how far they think this market can go and even more difficult, decide when this market gets a much needed breath of fresh air. (See overdue correction)

For other investors, there are similar issues pertaining to capturing gains in alternative asset classes other than stocks. Mutual funds would generally fall into the same category as stocks. Of course for all qualified accounts, as in IRA accounts, there are no taxable issues to muddy the waters until the time comes to take distributions from the IRA, such as the RMD, Required Minimum Distribution, which the IRS requires for investors to begin to spend down their tax deferred accounts.

Fortunately, for alternative tax deferred accounts, such as the insured index portfolio, there are no required distributions while the assets continue to grow tax deferred, as in zero tax due on gains until the assets are withdrawn. This powerful strategy allows investors to capture gains in the form of an annual reset whereby the portfolio resets each year on the anniversary date and captures gains from the previous12 months. Each anniversary investors have the choice of selecting a fixed rate for the next 12 month window rather than rely on the stock market for profitability. The power of growing these assets tax deferred is the equivalent of owning an IRA with unlimited contribution levels. These accounts generally have a single account limit of $1,000,000.

Finally, as investors ponder their situation as far as whether to buy or sell, many do not have the option as their accounts are actively traded by a professional. The ability for manage futures to take advantage of a 60/40 split on all gains as to long and short term taxation allows for a tax favored treatment on all gains which certainly leads to the life of a SWAN, Sleep Well At Night.

William F. Hague is a managing partner of Hague Wealth Management; 239-389-1999 or The opinions and observations stated above are those of the columnist.