Brett Arends of TheStreet.com gives some good advice on selling a stock for a gain and keeping exposure – buy an exchange traded fund (ETF). Investors in stocks, bonds or funds are looking at capital gains for the year. According to the IRS, you can’t sell a stock at a loss and then buy it back-there’s a 30 day wait first. And you can’t sell the stock and place it in a similar stock either. The most obvious solution is to sell the stock and buy its nearest competitor, but a better option is to find an ETF in the same industry sector and park your money there, wait 30 days and buy back the stock later. You may even decide you like the diversification and stay with the ETF.
An example: If you own any Homebuilders like Lennar (LEN), KB Home (KBH) or DR Horton (DHI) and you don’t want to lose exposure, look into the ETFs The Homebuilders SPDR (XHB) or Dow Jones US Home Construction Index iShare (ITB). Another example is if you own Amazon (AMZN), eBay (EBAY) or Yahoo (YHOO) stock look into the same sector ETF HOLDRs Internet-Exchange Traded Fund (HHH).
The only caution is that the IRS could say you lose your tax benefit for the percentage of the sector fund that is also invested in the stock you just sold. Consult your tax adviser because only two things in life are certain.
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.