 Selling
stocks and avoiding capital gains
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 Dear
Tax Talk,
Our family needs to move to a larger house. A large portion
of our net worth is tied up in stocks, and we would like to finance part of a
new home by selling most of our stock. My wife believes that there are tax breaks
on the capital gains if you use the money to buy your primary home. I'm concerned
that the capital gains aren't treated any differently than any other time you
sell a stock. Who is right, and what is the best way to use the value in these
equities without taking a huge tax hit?
-- Lance
 Dear
Lance,
Lucky for you and me your wife's a wishful thinker and not an
accountant. If you sell stock at a gain, you'll pay tax regardless of what you
apply the proceeds to. That is unless, of course, you have stock losses or losses
carrying forward from earlier years that can be used to offset the gains.
For
example, suppose you need $100,000 to put down on the new home. You would need
to review your portfolio and find $100,000 worth of stock that, when you calculate
the potential gain, results in little or no gain overall. That is, if you sell
various stocks worth $50,000 with $10,000 in gain, you need to find other stocks
that add up to $50,000 in value that when sold will produce $10,000 in loss. If
you had stock losses in earlier years, these losses may be carrying over from
2005. Check line 16 of your 2005 Form 1040 Schedule D to see if you have a loss
on this line. The only other tax-free way that you can use
your equities is to borrow against them. That's called a margin loan and you pay
margin interest. Margin interest may not be fully deductible as with home mortgage
interest, but the tax savings may make this more advantageous. I suggest you sit
with an impartial professional (i.e., not your stockbroker or real estate agent)
to see if the margin borrowing makes sense.
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