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Many investors own stock that dropped in value over the summer but is still selling above what they originally paid. If you think share values will rebound (they often do), consider these ideas:
• If your traditional IRA has shrunk because of lower stock prices, now may be a good time to convert to a Roth IRA. You will be taxed on funds coming out of the original IRA, but the taxable amount won’t be as large. Ask your tax adviser if you are eligible to make the switch.
• Make stock gifts to family members. You can give children or grandchildren up to $12,000 each this year ($24,000 apiece if you are married) and owe no gift tax. Your donees will take your cost basis and if stock values go up, future appreciation will be taxed in their lower tax brackets, unless the “kiddie tax” applies.
• Sell your current stocks and buy new shares in the same company. The amount subject to capital gains tax will be reduced and you will get a higher basis in the new shares. But if you now have a paper loss in your current stocks, beware of the “wash sale” rules: If you sell stock at a loss and buy the same stock within 30 days, any capital loss deduction is postponed until you sell the newly acquired stock.
• Contribute your present stock and buy new shares. You will avoid capital gains tax and receive a new, higher basis in the stock you purchase – plus a charitable deduction for the value of your stock on the date of the gift.
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Copyright © 2007 by R&R Newkirk. All rights reserved.
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