Taking advantage of economic downturn

[veritas]

The last time the maket took a big dive I advised some clients to convert traditional IRAs to a Roth.

Also for those invested outside a retirement account we advised selling and reinvesting in different securities to lock in losses and avoid wash sale rules.

This worked especially well for one client who sold his business in the following year and was able to offset large capital gains. In any event three thousand a year is better than nothing.

[Snaggletooth]

Mutual Fund Bloodbath

Have a client who has a tax loss of $65,000 in American mutual fund family. He is a long-time investor, and thinks they will come back.

Why not sell, take a tax loss, then reinvest in substantially the same strategic allocation with a different fund family, like Franklin/Templeton, Oppenheimer/Aim, or others? No one should be buffaloed by the 45-day non-recognition simply because they are in love with one particular stock or fund.

[BHoffman]

Prediction

I'm thinking US Currency (along with assets backed by it) is going to eventually lose value in the market. I'm advising clients to park it in Gold and foreign currencies - I'm especially liking the Swiss Franc. I'll give Peter Schiff a plug here. He's been making sense for years.

[Jiggers]

Prediction

I am advising clients that they should have bought stock last Friday.

[joanmcq]

And sold monday.. kinda on this topic, if a husband & wife in a non community property state hold different funds in their separate accounts, sell all of their shares, and he buys back to the funds she owned, & she buys the funds he owned, do you run afoul of the wash sale rules? They are filing joint, if that has any effect.

[joanmcq]

Never mind, found the answer....no.

[Skate1968]

Veritas,

Thats a real good idea. Thanks for posting.

I advised a client do the same. Sell some investments -- take a loss of 3k. Then buy up another security -- a similar one managed by a different outfit or maybe even precious metals.

[Jiggers]

Suggestion for ranchers

I have some ranchers who have investments in the stock market that have shown losses for some time, even before the downtown.

They also have some "raised" breeding stock.

I have suggested that they sell their stock market stocks for the loss.

Then sell some of their "raised" breeding stock because that will be considered a long-term capital gain, to offset the stock market losses.

Then buy some new breeder cows. Set these up for depreciation, including Sec 179 if needed. This will reduce self-employment income and the related self-employment tax.

Win - Win solution.

[JohnH]

Plus, if times really get bad, they wouldn't be able to butcher the securities & feed their family- but it's a different story with the cows...

[travis bickle]

You have to take into

Veritas,

Thats a real good idea. Thanks for posting.

I advised a client do the same. Sell some investments -- take a loss of 3k. Then buy up another security -- a similar one managed by a different outfit or maybe even precious metals.

account the wash sale rules:

"In general you have a wash sale if you sell stock at a loss, and buy substantially identical securities within 30 days before or after the sale."

[solomon]

My. Amazing.

[Skate1968]

Question

account the wash sale rules:

"In general you have a wash sale if you sell stock at a loss, and buy substantially identical securities within 30 days before or after the sale."

Wouldn't switching fund families, as Snaggle suggests, prevent the 'wash sale' rules? Would selling Oppenheimer large cap and then immediately buying Vanguard Larg Cap be considered a wash sale? I would think not.

[joanmcq]

It depends on how 'substantially similar' they are. I don't think for instance, selling Vanguard 500 Index fund & buying T. Rowe's 500 Index Fund would get around the wash rules.

[Snaggletooth]

They would

Joan, I've been taught all my career that the same security in a different fund family would escape the "wash sale" rules.

If I'm correct, then how would one interpret the language "substantially the same"?

I would think shares of Templeton World "A" and Templeton World "B" would in fact be exactly the same security, the only difference being the manner in which the load were applied.

Sea-Tax and Veritas, are you out there??

[veritas]

Good question

The IRS says substantially identical. Kind of open to interpretation.

I would say a different fund family with different managers and different top holdings would be the way to go. Of course be mindful of sale charges.

From Pub 564

Substantially identical. In determining
whether the shares are substantially identical,
you must consider all the facts and circum-
stances. Ordinarily, shares issued by one mu-
tual fund are not considered to be substantially
by another mutual
fund.

The word "ordinarily" makes me cautious.