December 9, 2009                  Explanation of recent buys and sells of the same positions in your accounts


You may have noticed, that we bought and sold the same securities in your accounts over the last week or so.  The reason for this is , New Jersey does not allow for capital losses, or any carry-forward losses. Use it as an immediate Capital Gain offset, or lose it forever. Wash sale rules are not a factor when dealing with gains.

Here is an example.  An  account with $1M in assets, had a $180K loss prior to tax gain selling. We harvested all practical gains, and bought the position back, or covered at a gain, and sold short again, with profitable shorts. Now that same account will have a capital loss of $20K. Hence, the client saves the $160K loss that would not have been able to be carried forward in NJ. Hence the tax savings could be  around (160K * 6.37%) $10,200.   In addition, the portfolio has a  stepped up basis going forward.  This is a key element going forward. 

Some Tax rates for 2009 in NJ are:

greater than $400,000 and equal to or less than $500,000 from 6.37% to 8%;

greater than $500,000 and equal to or less than $1,000,000 from 8.97% to 10.25%;

greater than $1,000,000 from 8.97% to 10.75%.

Last year, for our NJ clients, we typically kept capital losses at near zero. We do have some loss harvesting we can use in future years.

We like to stay tax efficient (key word, "like"). Sometimes tax efficiency doesn't happen.

The risk of above, is that when you eliminate a position, or cover a short, you might not be able to execute the buy back or short sale again, at a price you are comfortable with. We got lucky, and emphasize luck, and actually bought back at lower prices, and sold short at higher prices. All said and done, we have the same portfolio as prior to this task, yet higher cost basis going forward.

Please do not take this as advice. Perhaps there is an error or flaw, and of course, we would not be responsible to any readers, for any material or immaterial errors.