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December 8, 2017

Senate Proposal Accelerates Gains on Investment Account Assets

By: Thomas R. Vance, JD, LLM

Under the Senate’s version of the pending tax legislation, owners of stocks and bonds will no longer be able to specifically identify which portion of the securities are being sold or transferred.  Instead, securities will be deemed sold on a first-in, first-out (FIFO) basis.

Under current law, when owners of a particular stock disposes of some, but not all, of their holdings of that stock, they can choose to designate which shares are being sold or transferred.  By making this designation, they can choose to sell the lots with the highest tax basis and thereby reduce the total taxable gain on the transaction.

Similarly, under current law, they could choose which shares to transfer some shares to charity.  They can take a charitable deduction equal to the value of the stock – without first selling the stock and recognizing the gain.  By specifically designating shares with a low basis, they avoid more taxable gain and are therefore able to donate more.

Under the Senate plan, owners of investment assets would no longer have a choice about which lots of stocks, bonds or similar securities are transferred.  The proposal would require the securities to be sold or transferred on a FIFO basis.  This could increase the gains on sales and may limit the benefit of a charitable donation.

For further information, contact Thomas R. Vance at tvance@orba.com, or your ORBA advisor today at 312.670.7444, to see if there are steps you can take to reduce the impact of this potential change on your portfolio.