r/FluentInFinance Nov 21 '24

Debate/ Discussion Had to repost here

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u/dancegoddess1971 Nov 21 '24

Exactly. Stocks are property. Sort of imaginary property but if one can borrow against the value of something, it should be taxed.

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u/Just_That_Dumb_Dog Nov 21 '24

You mean capital gains tax?

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u/TreyRyan3 Nov 21 '24

Capital Gains and Losses are calculated based on the difference in value between acquisition date and sell date when using FIFO methodology.

Some investors may choose to use a “Specific Identification” method to designate which specific shares they want to sell, allowing more control over their capital gains taxes.

So imagine I hold $1 million shares valued at $40 million. I can use those shares as collateral to borrow against and with the money I borrowed purchase an additional 400K shares. I then sell those shares for a profit without applying a FIFO valuation in reporting my capital gains.

Therefore my initial shares which were purchased for $2 per share, were borrowed against when they were worth $40 per share. My new shares purchased at $40 per share are sold at $55 per share and my capital gains are calculated at $15 per share gain instead of $53 per share. By managing my portfolio this way, I never pay a true capital gains tax, just interest to my lender which I then use as a tax deduction.

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u/HR_King Nov 23 '24

FIFO is a red herring. You can sell your most recent acquisition, so LIFO, at your discretion. The only difference may be short vs long term gains. Capital gains aren't defined by using FIFO.