What am I missing? Tax planning Q

[samoroyd]

So client who’s 90yo, networth roughly 1M and declining health. Accountant called with client saying client has 40k in carry forward losses and he wants me to realize 40k in gains so the losses aren’t wasted if client passes. While I agree the losses would be wasted if client passes and the gains would be offset by the losses I do not see the benefits. In NY the beneficiary would get a step up in basis and wouldn’t have to pay taxes anyway and by using up the carry forward losses now she’s can’t deduct 3k against her ordinary income every year. So to realize gains just to realize gains I don’t get. Accountant is experienced and more knowledgeable on tax topics than myself I’m sure. What am I missing?

 

[tearsofzion]

@samoroyd If she’s in poor health she could be in a nursing facility paying over $100k/yr for care, or perhaps she may need full-time care soon. By selling it now, it may open up that money tax free to be used to provide her additional comfort in her final stretch, which is exactly what that money should be used for. Or she may want to gift some of it to family now simply because she can.

 

[neoinarien]

@samoroyd Is there any reason why the client needs to manage income and keep it below a certain threshold?

 

[oceans]

@samoroyd How big of a step up in basis is the bene looking at?

The loss of the max $3,000 against OI really won’t amount to that much, that said, I don’t know what tax bracket she’s in, etc. Agree with another, it frees up tax free cash she will likely need at her age. I’m a CPA & CFP.

 

[samoroyd]

@oceans Step up maybe 80k. Agree with second point if she was keeping it in cash but she wants to reinvest it as soon as it settles so I think that cancels out your point

 

[oceans]

@samoroyd Ah, missed the reinvest part. If she’s reinvesting in the same security the step up will be a moot point. If she is not, it could very well make a difference. So, if same security it does not make sense because she loses the $3k offset against OI. But a different investment option may be worth it even with the loss of the deduction. I’m guessing she’s not in the 37% bracket…