A husband and wife wanted to purchase a second home to enjoy for decades but to ensure that their process was well-planned and tax-savvy.
A couple with highly appreciated stock positions found a new construction condo in Boise, Idaho they wanted to purchase as a summer home. They asked for our help in determining the most cost-effective and tax-efficient method to purchase the condo for their family to enjoy for decades to come.
We established a Covered Call Options strategy for concentrated highly appreciated stock positions, which generated roughly $15,000 in premiums as additional income within a 3-month time frame. Step two called for closing out open Option positions to capture $76,000 of losses to help offset the gains from selling approximately $700,000 of the highly appreciated stock. This reduced tax liability from the transaction by about $10,000 compared to having sold the stock with no strategy in place.
To complete the purchase of the secondary home, the couple held approximately $600,000 of stock for about four months before selling it to pay off the margin loan in January of the following year. By splitting the stock sale across two tax years, almost the entire gain was taxed at a lower 15% rate, largely avoiding the 20% tax rate. Over $2 million of stock was sold, using strategies that saved approximately $75,000 in taxes.
