Brenda Vingiello, Sand Hill’s Chief Investment Officer, joined Squawk Box to discuss her thoughts on the latest market trends and market outlook for 2025. This
The Tax Minimizing Magic of Tidy Recordkeeping
Published Date : June 17, 2015
Who enjoys paying taxes? I think I can say confidently that the answer is no one. As covered in my article “All About That Basis,” an accurate record of the cost basis of your investments can help you minimize your tax bill when you dispose of an asset. The best and perhaps easiest way to do this is to stay organized and track your basis along the way. Below are some of the most common investment assets and what you should know about their basis.
- Cost Basis of your Personal Residence: The first $250k profit from the sale of your home is tax-free if you’re single and $500k if you’re married. With soaring Silicon Valley home prices, this will help with the ultimate tax bill but is not likely to eliminate it. In order to minimize Uncle Sam’s share of your profit, it pays to keep track of your basis as it changes over time. Your basis is initially fairly easy to calculate as it is simply the purchase price of the home plus a few extras like title insurance premiums, transfer taxes, and property inspection fees. Going forward, it can become a bit more complicated: the cost of any capital improvements that add value to your house or help adapt it to a new use, such as remodeling a kitchen, adding central air-conditioning, or even replacing a water heater, can be added to your basis. However, maintenance items like repairing a window or painting a room do not count as capital improvements.
- Cost Basis of your Investment Property: Like the basis for your personal residence, the initial basis for an investment property— like an office building — is the purchase price plus closing costs, attorney’s fees, inspection fees and any other miscellaneous fees. Capital improvements will add to your basis, so they need to be tracked as they occur. What is unique to investment property versus your home is that the IRS allows for a small write-off of the cost basis each year in the form of a depreciation deduction. This gradual reduction in the cost basis over time is intended to simulate the decrease in value of the property due to wear and tear or deterioration. If the investment property is later sold for more than the depreciated value, the IRS requires you to pay back some of the money you saved by claiming depreciation. This “recapture” amount can only be properly calculated by tallying up all of the depreciation you were entitled to take. Whether or not you actually claimed it is irrelevant – the IRS wants their cut.
- Bonds: Tracking the basis for stocks is fairly straightforward, which might lead you to believe that it is the same for bonds. Unfortunately, that is not the case. Here are some of the things you will need to know to determine your basis:
- Was the bond purchased at par, at a discount or at a premium?
- Did you hold the bond to maturity or sell it prior to maturity?
- Is it a tax-exempt or taxable bond?
For bonds purchased at par and held until maturity, the cost basis is simply the amount on your trade confirmation. For bonds purchased for more than par, the premium paid can be tax-deductible and amortized over the life of the bond. The cost basis of the bond is reduced each year by this amortized amount. For Sand Hill clients, this is now done automatically on our reports and on those of our custodians, Fidelity and Schwab. For all other situations — bonds purchased at a discount and sold before maturity for example — calculating your tax basis is more complicated. If this sounds confusing to you, there was some relief offered by 2008 legislation (Emergency Economic Stabilization Act of 2008), which requires brokerage firms to track the cost basis on bonds purchased after January 1, 2014. For bonds prior to that date, it is best to check with your Sand Hill Wealth Manager or CPA for help.
If you have a filing cabinet full of receipts for home remodeling projects or old trade confirmations stacked up to the ceiling, now may be the time to dig in and see what you really need to keep to document your basis. It may not be as daunting as you think. With these guidelines, hopefully you can make some progress and easily maintain your records going forward.
Articles and Commentary
Information provided in written articles are for informational purposes only and should not be considered investment advice. There is a risk of loss from investments in securities, including the risk of loss of principal. The information contained herein reflects Sand Hill Global Advisors' (“SHGA”) views as of the date of publication. Such views are subject to change at any time without notice due to changes in market or economic conditions and may not necessarily come to pass. SHGA does not provide tax or legal advice. To the extent that any material herein concerns tax or legal matters, such information is not intended to be solely relied upon nor used for the purpose of making tax and/or legal decisions without first seeking independent advice from a tax and/or legal professional. SHGA has obtained the information provided herein from various third party sources believed to be reliable but such information is not guaranteed. Certain links in this site connect to other websites maintained by third parties over whom SHGA has no control. SHGA makes no representations as to the accuracy or any other aspect of information contained in other Web Sites. Any forward looking statements or forecasts are based on assumptions and actual results are expected to vary from any such statements or forecasts. No reliance should be placed on any such statements or forecasts when making any investment decision. SHGA is not responsible for the consequences of any decisions or actions taken as a result of information provided in this presentation and does not warrant or guarantee the accuracy or completeness of this information. No part of this material may be (i) copied, photocopied, or duplicated in any form, by any means, or (ii) redistributed without the prior written consent of SHGA.
Video Presentations
All video presentations discuss certain investment products and/or securities and are being provided for informational purposes only, and should not be considered, and is not, investment, financial planning, tax or legal advice; nor is it a recommendation to buy or sell any securities. Investing in securities involves varying degrees of risk, and there can be no assurance that any specific investment will be profitable or suitable for a particular client’s financial situation or risk tolerance. Past performance is not a guarantee of future returns. Individual performance results will vary. The opinions expressed in the video reflect Sand Hill Global Advisor’s (“SHGA”) or Brenda Vingiello’s (as applicable) views as of the date of the video. Such views are subject to change at any point without notice. Any comments, opinions, or recommendations made by any host or other guest not affiliated with SHGA in this video do not necessarily reflect the views of SHGA, and non-SHGA persons appearing in this video do not fall under the supervisory purview of SHGA. You should not treat any opinion expressed by SHGA or Ms. Vingiello as a specific inducement to make a particular investment or follow a particular strategy, but only as an expression of general opinion. Nothing presented herein is or is intended to constitute investment advice, and no investment decision should be made based solely on any information provided on this video. There is a risk of loss from an investment in securities, including the risk of loss of principal. Neither SHGA nor Ms. Vingiello guarantees any specific outcome or profit. Any forward-looking statements or forecasts contained in the video are based on assumptions and actual results may vary from any such statements or forecasts. SHGA or one of its employees may have a position in the securities discussed and may purchase or sell such securities from time to time. Some of the information in this video has been obtained from third party sources. While SHGA believes such third-party information is reliable, SHGA does not guarantee its accuracy, timeliness or completeness. SHGA encourages you to consult with a professional financial advisor prior to making any investment decision.
Other Posts By This Author
- – Understanding the Terms: All About That Basis
- – Home Sweet RV
- – The Basics of Long-Term Care Insurance
- – Roth IRA Conversion: 2023 May Be Your Year
Related Posts
Recent Posts
