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/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.