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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Welcome to the Enjoy More 30s Family Finance

podcast. The only podcast dedicated to making life more

enjoyable for young families by hitting on the financial topics

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

from simply enjoying life.

Hello, and welcome to the Enjoy More 30s Family

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

have been significant declines across pretty much every major

asset class through October. With rates rising significantly

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

unnerving experience. This series is going to attempt to

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

episodes to help you emotionally navigate what are turbulent

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

episode bringing what I would say are timeless concepts into

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

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

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

you.

Today's episode is Step Up! The Gain Is Gone - REMIX. 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. Today, though, we're going to expand on that

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

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

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

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

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

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

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

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

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

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

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

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

really big line for the first time since we were running

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

somewhere else circle back around, all of a sudden this

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

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

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

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

was a beautiful thing.

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

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

beautiful thing to avoid taxation on built up gains. So

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

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

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

capital gains tax on that difference. That $450

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

to 2022 rules, that gain would be forgiven. 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.

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

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

happening is just that the starting point is being reset

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

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

losses, which are actually a good thing from a tax

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

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

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

which could help offset their tax bills against gains or

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

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

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

today. 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.

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

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

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

own realized gain or loss associated with it. 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.

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

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

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

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

which if you do have older parents, realizing some losses

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

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

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

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

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

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

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

this is for any joint, individual, any non retirement

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

that interest is reinvested every year but you pay tax on

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

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

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

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

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

potentially be an advantage based on what your full

situation might look like.

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

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

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

make better decisions and help you just not worry about your

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

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

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

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

joining me today and I look forward to connecting with you

again soon.

The conversations on this show are

Joe's opinions and provided for general information purposes

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

professional advice for your specific situation. You should

always seek appropriate advice from a financial advisor,

accountant, lawyer or other professional before acting upon

any content or information found here first. Joe is affiliated

with New Horizons Wealth Management LLC, a branch office

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

Registered Investment Advisor, Member FINRA/SIPC.