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Step Up! The Gain is Gone - REMIX | Series 10.6
Episode 612th December 2022 • Enjoy More 30s: Family Finance • Joseph P. Okaly
00:00:00 00:07:23

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Certain assets will now forgive all taxable gains, but what about losses?

  • Now this original episode, we spoke about how if you inherit what they call taxable, so non IRA or annuity type assets, so really essentially, if money's in a joint account or an individual account, something like that, as of 2022, that entire gain would be forgiven. (01:06)
  • So you would let's say inherit that $500 and that would be your kind of starting point. You wouldn't have to pay tax on that $450 growth that they experienced, that whole thing would kind of be thrown out and your new starting point would be the $500 value of where it is today. (03:10)
  • So while avoiding gains is possible, so is missing out on losses. And for 2022 there may be losses all around to harvest, you know, that's what they call it, harvesting the losses, both for you and maybe your parents as well. (04:19)

Quote for the episode: "So taking a look at what this is and if harvesting any losses makes sense for your situation, this would potentially be worth looking into for something to do before the end of the year with your advisor, most likely, if you're not capable of doing that on your own." (04:47)

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Transcripts

Voiceover Audio:

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

Voiceover Audio:

from simply enjoying life.

Joseph Okaly:

Hello, and welcome to the Enjoy More 30s Family

Joseph Okaly:

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

Joseph Okaly:

have been significant declines across pretty much every major

Joseph Okaly:

asset class through October. With rates rising significantly

Joseph Okaly:

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

Joseph Okaly:

unnerving experience. This series is going to attempt to

Joseph Okaly:

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

Joseph Okaly:

episodes to help you emotionally navigate what are turbulent

Joseph Okaly:

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

Joseph Okaly:

episode bringing what I would say are timeless concepts into

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

you.

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

really big line for the first time since we were running

Joseph Okaly:

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

Joseph Okaly:

somewhere else circle back around, all of a sudden this

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

was a beautiful thing.

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

beautiful thing to avoid taxation on built up gains. So

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

capital gains tax on that difference. That $450

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

they experienced, that whole thing would kind of be thrown

Joseph Okaly:

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

Joseph Okaly:

it is today.

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

happening is just that the starting point is being reset

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

losses, which are actually a good thing from a tax

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

which could help offset their tax bills against gains or

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

look at what this is and if harvesting any losses makes

Joseph Okaly:

sense for your situation, this would potentially be worth

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

on your own.

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

which if you do have older parents, realizing some losses

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

this is for any joint, individual, any non retirement

Joseph Okaly:

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

Joseph Okaly:

that interest is reinvested every year but you pay tax on

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

potentially be an advantage based on what your full

Joseph Okaly:

situation might look like.

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

make better decisions and help you just not worry about your

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

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

Joseph Okaly:

joining me today and I look forward to connecting with you

Joseph Okaly:

again soon.

Voiceover Audio:

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.

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