Stocks vs Real Estate

6 Replies | Seattle, Washington

Hi BP! My friend previously worked at Amazon and decided to take 10 months off this year. Since she didn't make any income this year, she is considering selling all her Amazon stocks to avoid $10k in capital gains tax from the appreciation. She is considering investing into a small studio and converting that into a rental. Does anyone have any thoughts on Amazon stock vs. studio condo in Seattle? Thanks in advance!

Hi Vivian,

Without the full picture, it's hard to gauge what the strategy is here.  What capital gains would she be looking to avoid?  Having a capital gains liability would entail she has sold some form of property or investment.

Investing in rentals is a great idea for someone who is looking to build a portfolio or have passive income.  It can create generational wealth or retirement income through other people's money.  Seattle has been a very hot market the last few years which has allowed anyone owning rentals prior to that period to realize large appreciation gains.  Now, some of those same investors are trying to decide what their next course of action is (leverage and buy more, etc.).

I would refer your friend to a tax expert and a Financial Advisor who can better understand her scenario and provide recommendations.  Both stocks and real estate are speculative plays, with arguments to be made on both sides as to which is safer or provides more of a return.  Ultimately she needs to be well versed in what her options are and how they play into her risk tolerance and investment strategies.

I'd be happy to discuss Seattle Real Estate with you/her.  For the tax and income questions she needs to seek a CPA and Financial Advisor.  I'd also be happy to provide some recommendations to people who would be able to help.

- Jake

I'm no expert but I'm not aware of a way to avoid capital gains tax on stocks. There is no 1031 for stocks. 

selling stock to avoid a 10K  tax  sounds a bit rash … much stock would be sold  ?   fyi - be aware some condo complexes will have provision that  you are not allowed to buy if  unit will be an investment  ...take in consideration  the  entire  costs for the  condo ...dues / taxes  / insurance if needed  when  figuring out  cash flow  …..vacancies are  softening so the rent income might  be lower than it would've been  6 months ago ...if buying a condo - make sure to  check the resale certicate of any unit to make sure that there are no assesments  pending or litigation pending as well

I think your friend is confusing short term vs long term capital gains tax.  All gains are subject to capital gains tax.  You can of course offset the gains with deductibles (losses/expenses) but that's a different story.

Stocks held for less than a year and sold will be taxed at the person's standard tax rate (short term).  Stocks held for more than one year (based on vest date and sell date) will most likely be taxed at 15% (long term) if your friend's income is between $38k and $425k which I assume is the case if we're talking about $10k in capital gains tax.

Now, selling ALL stocks to put into a single unit is high risk since the investment is then not liquid and you are tied to that one asset as opposed to stocks where one can sell SOME stocks and diversify by buying stocks/bonds/CDs/etc in a variety of assets and sell if money is needed at some point in the future.

The above is just my opinion and I'm not advising to do one way or the other just trying to help clear some things up.

I think what the original poster was saying is that because her bracket is lower from not working, there would be some tax benefits from short term cap gains which would otherwise be taxed at the bracket rate.