How to decide which assets to sell?

[LurfysMa]

I need to cash some investments to pay for a home improvement.

I have three potential sources:

1. A loan, bank or second mortgage. I haven't yet checked the interest
rates.

2. Sell some stocks or mutual funds I purchased myself. Most of these
I have owned for at least several years, some much longer.

3. Sell some stocks I was given by my parents. They are trying to
reduce their estate as much as possible before they die. They have
been giving each of us children $20,000 in stock each year. They
started this about 5 years ago. This is all IBM stock.

How can I calculate the advantages and disadvantages of selling each
of these assets or getting a loan.


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[Paul A Thomas]

I need to cash some investments to pay for a home improvement.

I have three potential sources:

1. A loan, bank or second mortgage. I haven't yet checked the interest
rates.

There isn't an income tax hit with a loan. It's possible that the loan, if
secured by the house, would allow the interest to be deductible on Schedule
A, so keep that factor in mind.

2. Sell some stocks or mutual funds I purchased myself. Most of these
I have owned for at least several years, some much longer.

3. Sell some stocks I was given by my parents. They are trying to
reduce their estate as much as possible before they die. They have
been giving each of us children $20,000 in stock each year. They
started this about 5 years ago. This is all IBM stock.

How can I calculate the advantages and disadvantages of selling each
of these assets or getting a loan.

The stock sales would carry a potential tax hit. More so if you sell all
gainers. If you held some stocks that are currently in a losing position,
consider selling some of those to lower your overall gains.

The only way to know for sure which is going to be best, is to compile some
potential numbers, and see what the tax and financial impact is going to be.

I'd consider the loan, unless that additional monthly mortgage payment isn't
in the budget (or at least is shaky). If you do sell the stocks, plan on
making a "mortgage" payment back to yourself to build back the investments.

 

[LurfysMa]

There isn't an income tax hit with a loan. It's possible that the loan, if
secured by the house, would allow the interest to be deductible on Schedule
A, so keep that factor in mind.





The stock sales would carry a potential tax hit. More so if you sell all
gainers. If you held some stocks that are currently in a losing position,
consider selling some of those to lower your overall gains.

Unfortunately, I only have winners ;-) Most of the stocks have been
held for quite some time.

The only way to know for sure which is going to be best, is to compile some
potential numbers, and see what the tax and financial impact is going to be.

I'd consider the loan, unless that additional monthly mortgage payment isn't
in the budget (or at least is shaky). If you do sell the stocks, plan on
making a "mortgage" payment back to yourself to build back the investments.

I guess I phrased the question poorly. Here's what I really need to
know:

1. How is the tax calculated for stock sales? Is it still capital
gains and is that a fixed rate regardless of income tax bracket?

2. If the stock was a gift (I paid zero for it), is the basis for me
zero? Does it matter what kind of a gift it was? I believe my parents
paid some gift tax.

Thanks

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[Paul A Thomas]

1. How is the tax calculated for stock sales? Is it still capital
gains and is that a fixed rate regardless of income tax bracket?

Fixed, at 5% or 15% depending on your tax brackets.

2. If the stock was a gift (I paid zero for it), is the basis for me
zero? Does it matter what kind of a gift it was? I believe my parents
paid some gift tax.

Gifts carry the giver's basis, so ask your parents what they paid for it
(what was their basis).