Step Up! The Gain is Gone - REMIX | Series 10.6

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Welcome to the Enjoy More 30s Family Finance

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podcast. The only podcast dedicated to making life more

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enjoyable for young families by hitting on the financial topics

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that tend to weigh on us, stress us out, and distract our focus

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from simply enjoying life.

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Hello, and welcome to the Enjoy More 30s Family

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Finance podcast, REMIX for Rising Rates. In 2022, there

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have been significant declines across pretty much every major

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asset class through October. With rates rising significantly

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for the first time really in a long time, it can be a bit of an

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unnerving experience. This series is going to attempt to

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help you with that going back and re-mixing a number of past

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episodes to help you emotionally navigate what are turbulent

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times so far in 2022. Each week, I'll be re-mixing a different

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episode bringing what I would say are timeless concepts into

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focus of the present day situation. As always, before I

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begin, please share and like please leave reviews. I'd love

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to reach and help as many young families out there just like

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you.

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Today's episode is Step Up! The Gain Is Gone - REMIX. Now this

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original episode, we spoke about how if you inherit what they

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call taxable, so non IRA or annuity type assets, so really

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essentially, if money's in a joint account or an individual

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account, something like that, as of 2022, that entire gain would

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be forgiven. Today, though, we're going to expand on that

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point, as it has to do with really the opposite of that,

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losses, potentially in 2022. Now, the story I shared

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originally then was when I went to Disney with my wife, Lauren,

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and this is back before we had kids, the simpler times in life,

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it was way easier to move around. Two adults can really

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fly through the Disney parks and hit everything in just a couple

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of days. The one time that we really hit a bit of a wrench in

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our plans is we were wanting to get on a ride at Hollywood

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Studios called Toy Story Midway Mania, where you can sit down in

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this kind of cart and you shoot at things with 3D glasses as

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you're spinning around these carnival style games. It's

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pretty cool. The problem though, is when we got there, we hit a

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really big line for the first time since we were running

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around. And as we were debating what to do, should we go

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somewhere else circle back around, all of a sudden this

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kind of side door opened up out of nowhere, a cast member asked

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how many were in our party. We answered two which was the right

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answer. And they ushered us right through the door into the

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side entrance all the way up to the front of the line. It was it

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was a beautiful thing.

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So when it comes to capital gains being forgiven, when you

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inherit assets, it's kind of like that side door and can be a

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beautiful thing to avoid taxation on built up gains. So

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just to kind of give a broader spectrum of what this means, if

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your parents bought, let's say, ABC stock for $50 and now it's

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worth $500, if they were to sell it today, they would have to pay

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capital gains tax on that difference. That $450

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difference. If they were to pass away, though, again, according

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to 2022 rules, that gain would be forgiven. So you would let's

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say inherit that $500 and that would be your kind of starting

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point. You wouldn't have to pay tax on that $450 growth that

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they experienced, that whole thing would kind of be thrown

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out and your new starting point would be the $500 value of where

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it is today.

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How this applies, though to 2022 may be on the loss side of

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things. So while I said the gain would be forgiven, what's really

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happening is just that the starting point is being reset

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for all the holdings. This is true for unrealized gains, kind

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of what I just went through. But it's also true for unrealized

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losses, which are actually a good thing from a tax

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perspective. If your parents paid $500 for ABC stock, and it

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went down to $50, so the reverse, then if they sold it

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when they were alive, they would receive a $450 taxable loss,

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which could help offset their tax bills against gains or

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otherwise. If they passed away though before selling it, that

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loss would also be lost. And your starting point as the

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person who inherited it would be just that $50 of what it's worth

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today. So while avoiding gains is possible, so is missing out

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on losses. And for 2022 there may be losses all around to

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harvest, you know, that's what they call it, harvesting the

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losses, both for you and maybe your parents as well.

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So if you look at your portfolio, you don't just have

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ABC stock, you have lots of other things. You might have

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stock mutual funds, you might have bond funds, each has its

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own realized gain or loss associated with it. So taking a

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look at what this is and if harvesting any losses makes

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sense for your situation, this would potentially be worth

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looking into for something to do before the end of the year with

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your advisor, most likely, if you're not capable of doing that

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on your own.

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Now, there are some rules called wash sale rules. So you need to

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be aware of a couple things going on. Again, that's where if

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you have an advisor where they could be of help with it. And

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how it would also relate, though, then to your parents,

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which if you do have older parents, realizing some losses

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for them may especially make sense. Again, you know, if you

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don't use them, you lose them. And so if you're going to look

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at your parents' portfolios, the bond funds or the fixed income

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funds, they tend to be the place where losses tend to accumulate.

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Because for those funds, most of the gain tends to be tied to the

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interest. The interest, even if you reinvest it into the

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account, the interest is taxable at the end of every year. Again,

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this is for any joint, individual, any non retirement

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or annuity account, this is how it works for the bond piece. So

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that interest is reinvested every year but you pay tax on

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it. So that plays games with how the taxes work, they call it the

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cost basis. So just that would be a good area to look into if

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you're doing it for yourself or for your parents as well. So

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again, not recommending that you that you harvest the losses, not

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telling you to definitely do it. But it is something that could

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potentially be an advantage based on what your full

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situation might look like.

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Thanks for tuning in today, which will be our last episode

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for 2022 here, remix back around with us in 2023 as we continue

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to try to help you navigate your financial situation, help you

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make better decisions and help you just not worry about your

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finances as much so you can go out and enjoy life. As always,

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please remember to review and share for others. And if you

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need any help, don't hesitate in reaching out. I probably have

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helped someone just like you. Until next week. Thanks for

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joining me today and I look forward to connecting with you

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again soon.

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The conversations on this show are

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Joe's opinions and provided for general information purposes

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only. They do not constitute accounting, legal, tax or other

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professional advice for your specific situation. You should

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always seek appropriate advice from a financial advisor,

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accountant, lawyer or other professional before acting upon

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any content or information found here first. Joe is affiliated

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with New Horizons Wealth Management LLC, a branch office

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of TFS Securities, Inc., and TFS Advisory Services an SEC

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Registered Investment Advisor, Member FINRA/SIPC.