Low Cost Basis Stock

Evaluating Alternatives

A substantial stock position with low basis represents a double-edged sword for many investors. On one hand, the position has likely appreciated significantly since it was acquired. On the other hand, the only way to capture those gains is to sell the position and face a sizable tax obligation.

At JIC, we help clients develop tax-efficient strategies for managing low-basis stock. One of the key factors we consider is the size of the position relative to the total investment portfolio.

If the position is a relatively small percent of portfolio assets then perhaps nothing has to be done. However, if an individual stock represents a larger percentage of an individual’s portfolio, we examine a number of alternative strategies.

For example, if you are charitably inclined, low cost basis stock may provide significant tax benefits. You donate the stock to a qualified charity and receive certain tax benefits. This strategy can be particularly effective for things such as annual charitable contributions. In one transaction, you make your charitable donation, eliminate a capital gain, and receive a tax deduction. There are other types of strategies that could be discussed where the donor receives income from their charitable donation.

Generally speaking, though, there is no “magic” answer that works for every situation. The solution depends on your specific facts and circumstances and should be evaluated in terms of the impact on your overall financial plan. Often times, using a combination approach — over a multi-year period may provide a reasonable, balanced solution.

The first step is to schedule a consultation with JIC. We can examine your low-basis position and discuss your needs and objectives. After fully understanding your situation, we can then begin to develop a custom strategy.