Hi Fred, I found some more very interesting information today about capital gains shelters...perhaps from profits from stocks like Dell. :~):~)
Basically, it gets down to investing in a SSBIC (Specialized Small Business Investment Corporation). As an example, take a look at NASDAQ publicly traded companies like FSVC and EKFG - the only ones I can find so far. Like a REIT, SSBIC's must pay out 90 % or more of its taxable income to shareholders - usually as dividends. The tax benefit is that the government offers a special tax break to investors. Investors can sell companies where they have profits, and defer the capital gains by investing the sale proceeds in a SSBIC within 60 days. Individuals can defer capital gains up to $ 50,000/yr up to $ 500,000.
There also is an exclusion of gain from what I understand. Anyways, it may be worth looking into with your tax professional.
Regards,
Phil
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irs.gov
Exclusion of Gain From Sales of Small Business Stock
Beginning in 1998, you may have to pay tax on only one-half of your gain from the sale
or exchange of qualified small business stock. This applies only to stock originally
issued after August 10, 1993, and held by you for more than 5 years.
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A general overview of SSBIC's may be found on this website although it deals specifically with FSVC.
tomorrowcast.com
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It started off when I read the following excerpt of an article about investment incentives:
Liven Up Portfolio With Fun Stocks; How About a Stock That Tests
Your Risque Tolerance?
James K. Glassman
12/13/1998
The Washington Post
FINAL
Investing doesn't have to be serious and boring. It can be fun and, well . . .weird.
Noo Yawk taxi: How would you like to invest in an unusual company, owned
by immigrants and selling a product that helps scrappy, low-income
entrepreneurs work their way up? It's a company started in 1982, making
decent profits, paying a dividend of 8.8 percent and trading at a P/E of 13.
And, incredibly, it offers a unique tax break that lets you postpone capital
gains for years.
The company, Freshstart Venture Capital Corp. Inc. (FSVC), finances the
purchase of taxi medallions -- that is, licenses, currently going for about
$217,500 each, to operate on the streets of New York. Its president, Zindel
Zelmanovitch, a Soviet immigrant, got his first job in the United States in
1972, driving a cab.
As one of just 80 government-designated "specialized small-business
investment companies" that lend to "socially or economically disadvantaged
people" -- and the only one that's publicly traded -- Freshstart can extend a
remarkable break to investors under Section 1044 of the tax code. If you
have a profit in another stock, you can roll over your gains into Freshstart
within 60 days and defer taxes until you sell Freshstart. Check with your
accountant or the company, but, in general, you can shelter up to $50,000 or
more this way.
I'm not advocating you invest that much -- or anything at all. You'll have to
check out Freshstart and decide yourself. Be warned, also, that the stock is
thinly traded, with a market capitalization of just $11.4 million.
But, along with its other benefits, the company provides an attractive way to
invest in a booming New York, where, at least for now, taxi medallions are in
limited supply but cabs (especially on rainy nights around theater time) are in
overwhelming demand.
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I also checked the IRS website regarding SSBIC's:
irs.gov
"Rollover of Gain From Publicly Traded Securities
You may qualify for a tax-free rollover of certain gains from the sale of publicly traded
securities. This means that, if you buy certain replacement property and make the
choice described in this section, you postpone part or all of your gain.
You postpone the gain by adjusting the basis of the replacement property as described in
Basis of replacement property, below. This postpones your gain until the year you
dispose of the replacement property.
You qualify to make this choice if you meet all the following tests.
1.You sell publicly traded securities at a gain. Publicly traded securities are
securities traded on an established securities market.
2.Your gain from the sale is a capital gain.
3.During the 60-day period beginning on the date of the sale, you buy replacement
property. This replacement property must be either common stock or a
partnership interest in a specialized small business investment company
(SSBIC). This is any partnership or corporation licensed by the Small Business
Administration under section 301(d) of the Small Business Investment Act of
1958, as in effect on May 13, 1993.
Amount of gain postponed. If you make the choice described in this section, you
must recognize gain only up to the following amount:
1.The amount realized on the sale, minus
2.The cost of any common stock or partnership interest in an SSBIC that you
bought during the 60-day period beginning on the date of sale (and did not
previously take into account on an earlier sale of publicly traded securities).
If this amount is less than the amount of your gain, you can postpone the rest of your
gain, subject to the limit described next. If this amount is equal to or more than the
amount of your gain, you must recognize the full amount of your gain.
Limit on gain postponed. The amount of gain you can postpone each year is limited to
the smaller of:
1.$50,000 ($25,000 if you are married and file a separate return), or
2.$500,000 ($250,000 if you are married and file a separate return), minus the
amount of gain you postponed for all earlier years.
Basis of replacement property. You must subtract the amount of postponed gain
from the basis of your replacement property.
How to report gain. If you choose to postpone gain, report the entire gain realized
from the sale on line 1 or line 8 of Schedule D (Form 1040), whichever is appropriate.
Directly below the line on which you report the gain, enter "SSBIC Rollover" in column
(a) and enter the amount of gain postponed in column (f). Enter it as a loss (in
parentheses).
Also attach a schedule showing:
1.How you figured the postponed gain,
2.The name of the SSBIC in which you purchased common stock or a partnership
interest,
3.The date of that purchase, and
4.Your new basis in that SSBIC stock or partnership interest.
You must make the choice to postpone gain by the due date (including extensions) of
the tax return on which you must report the gain. Your choice is revocable with the
consent of the IRS."
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The government may broaden the incentives in the future:
millerchevalier.com
"Expand tax incentives for specialized small business investment companies (SSBICs). Current law provides certain tax incentives for
investment in SSBICs. The Administration proposes to enhance the tax incentives for SSBICs. First, the existing provision allowing a tax-free
rollover of the proceeds of a sale of publicly-traded securities into an investment in a SSBIC would be modified to extend the rollover period to
180 days, to allow investment in the preferred stock of a SSBIC, to eliminate the annual caps on the SSBIC rollover gain exclusion, and to
increase the lifetime caps to $750,000 per individual and $2,000,000 per corporation. Second, the proposal would allow a SSBIC to convert from
a corporation to a partnership within 180 days of enactment without giving rise to tax at either the corporate or shareholder level, but the
partnership would remain subject to an entity-level tax at any time that it later disposed of assets that it holds at the time of conversion on the
amount of ?built-in? gains inherent in such assets at the time of conversion. Finally, in the case of a direct or indirect sale of SSBIC stock that
qualifies for treatment under section 1202, the proposal would raise the exclusion of gain from 50 percent to 60 percent. The tax-free rollover
and section 1202 provisions would be effective for sales occurring after the date of enactment."
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P.S. Fred, my hat is off to you for participating in Big Brothers/Big Sisters. :~) |
