how to avoid capital gains

Question

Is there any way to avoid capital gains on selling company stock? Or counter some of the taxes??  It's purchased thru Computershare site. I needed the money to use towards a downpayment of an investment property.  I'm 43 years old

Josh St Laurent · Answer

Well, that opens Pandora's box when it comes to tax consequences/strategy.  I'll double down on talking to a CPA because this is absolutely a situation where if you're strategic it'll make a world of difference.  I'll try to be helpful and concise here without being too long-winded...ESPP - Typically you buy this at a discount (Usually 15%) typically you get beneficial tax treatment on the discount and won't have to pay income tax on it as long as you hold it for their required holding period. (Usually 2 years from the offering date and 1 year from the purchase date).  If you meet the holding period you will only pay LTCG (long-term capital gains) on any growth.RSUs - A bit simpler, when your RSU shares vest they will move into your brokerage account and that will trigger income tax on the value of the shares.  Essentially at that moment you own them outright and could sell them without additional tax.  Now that you've been holding them what you have to think about is how long you've owned them.  If it has been over a year you would only need to pay LTCG (15% for most) ONLY on the gains since your shares vested.Stock in 401k - Believe it or not, this may be the most complicated holding you have.  Shares in a 401k are not usually shares, typically they are what's called a Unitized Stock Fund.  If you no longer work for the company you can take advantage of a concept called NUA (Net Unrealized Appreciation).  This involves rolling your shares from your 401k into a brokerage account (Taxable event and potentially a 10% penalty if you're under 59.5 y/o).  Here is where the strategy comes in:When you move 401k stocks to a brokerage account via an NUA transaction, you pay income tax on the cost basis (And maybe a 10% penalty) but NOT on the gains until you sell.  When you do sell you'll pay LTCG on the growth EVEN IF you haven't held it in that brokerage for a year.  This type of strategy works really well for people who worked at a company for a long time and whose stock did incredibly well.

These are concepts even financial advisors get tripped up on so feel free to clarify anything that doesn't make sense or if you want to give more specifics I can give examples and math.

Bill Hampton · Answer

@Tom Server

I recommend a paid consultation with tax strategist to explore your options. You may want to consider working with your tax accountant remotely to expand your options.

Good luck on your search.

Deb S. · Answer

I'm not a tax professional but I have ESPP and RSU's from my former company also. If/when I sell from my ESPP, I also look at my portfolio to see if I'm holding anything I no longer want to be holding AND if it will create a loss by selling. If yes, I sell that stock and use the loss to offset the capital gains I will have from the sale of my ESPP shares.

If you really don't WANT to sell anything else in your portfolio (that will cause a loss) you could do a 'wash sale'. This would mean you sell a stock at a loss and then wait 31 days before buying it back. This way you get the loss and you don't have to give up your shares.  Clearly in those 31 days the price of the stock will not be the same as when you sold it 31 days earlier but it is another way to create a loss to offset the gains you will incur.

Also, remember that the investment property you are buying will have some depreciation that will also help offset your taxable income. If the investment property you are buying is going to be a STR, you MAY be able to do a cost segregation which would also save on taxes. Always consult your tax advisor for your specific situation.

Hope this helps.

Josh St Laurent · Answer

Hey Tom, glad you asked because there are a few ways to offset capital gains from selling company stock.  Ultimately I'm not a CPA or EA and it would be best to consult someone who is.  With that being said, a few clarifying questions that'll make a difference at tax time.

- It seems like you already sold the shares, is this the case?  If so, how long did you own them? (More than or less than 1 year)- Were/are the shares from a stock purchase program like ESPP, RSU, ESOP, or something of the like, or were the shares just in a brokerage account at Computershare?These 2 points will help me give more pointed suggestions for what you're up against because the tax rules all can be slightly different.  Here are a few high-level possibilities to consider.

- Capital losses can offset gains (Short term offsets short-term and long-term offsets long-term)- Tax loss harvesting - If you have other investments (At a loss) sometimes you're able to sell them and offset your gain- Charitable giving- Paper losses from your investment propertyWith some more information, we can hone in on which options would be applicable for you.

Hope this helps!

Tom Server · Answer

Hello Josh, thanks for the reply. I did not sell the stock yet. The company stocks were purchased with ESPP and RSU thru computershare. I also have company stock thru Voya as a 401k match. With the computershare I could see the blocks of stocks that were purchased from 1999 to 2023. With the Voya 401k it does not show a block of stocks but just a amount of shares.

David Ramirez · Answer

If you don't need all the money you could roll some into a tax-deferred account such as an IRA or 401k and save some of the tax liability. For how long have you held that position? I would wait at least a year from when you first bought those shares so you can get taxed as long-term capital gains. I don't think there is a way to avoid it if you are going to cash out completely but I would be curious to find out if there is - following this thread. Best of luck!

Christie Gahan · Answer

Obviously, you need an accountant that loves tax strategy.

It is possible to convert a 401k to a self directed 401k.  With how your 401k is funded this might he a terrible idea.

A self directed 401k can own real estate.  Loans must be non recourse. You can't get to any profit until you are the correct age and you meet the IRS rules and regs.  You will have zero tax write offs because you are not paying income tax because it is a 401k.

Important:  Funds from your 401k must be transferred to a self directed 401k account.  It can''t go thru your personal accounts because you have not paid income tax on this money yet.  Violating this would make this ordinary income and you would owe: state, federal income tax plus a penalty.

Tom Server · Answer

Josh thank you for taking the time to explain the different options. Yes I've been at the company for for 24 years and yes had the shares do well over the course of the 24 years. I started purchasing the stock in 1999 for around 50 dollars a share and it had a high of 230 a share about 2 years ago..Now its currently at 154 mark..

I left this job 2 years ago and just now rolling over the 401k funds over to my new companies 401k account. I still kept the stock portion of the 401k in the old account.. Just cause the stock dropped a lot over the course of the last 2 years. When I look at the stocks in the 401k account, I don't see a cost basis??.. i just see the total amount of shares and the value of it. Maybe I need to do some more digging.

In my companies stock account I do see all the different buckets of prices I purchased the stock at.

To really get a understanding of the situation.. It just happened that im in the process of purchasing 2 properties this month. 1 is a rehab, that I plan on keeping for my self for a bit then selling.. the other is an invest property non owner occupied thats a 3 family

The rehab I need to purchase out cash 105k and another 15k-20k to repair

The rental property I need to put 25% down and closing is around 70k

So I need 175k to purchase and another 30k to repair both properties

I have 90k in liquid in a savings account,  230k in a 401k made up of the funds and stock

and about 330k in my companies stock account..

My plan was and not sure if this is the smartest way .. hence why I'm asking here!

90k liquid + 50k 401k loan + 35k sell company stock ...the other 30k to repair maybe HEL or LOC

I made an error thinking i could borrow up to 50% of my 401k but found out it maxed 50k so now i have to sell the stock to make up the differences

There other issue is the repayment of the 401k its has to be paid back to myself in 5 years.

So the other idea is after everything is said and done.. take a loan out repay 50k and rebuy the stock.. and have like a 10 or 15 year loan to pay it back

Thank you for listening

Tom Server · Answer

Yeah i think it was around 12% if I remember correctly.

Benjamin Stickler · Answer

If you have enough stock that you don't need to sell all of it you could try to find a brokerage(you would have to transfer the stock to the brokerage)/bank willing to loan you money on the portfolio.  Of course with today's interest rates that may make your deal less appealing.

how to avoid capital gains

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