Why no brokerage to swap / exchange equity?
Say X works for Google and wants to sell his RSU to buy MSFT. In current brokerage system, it hits tax on the capital gain. Wonder why no brokerage allows exchanging the equity without hitting a tax. Example, say Y works for Microsoft and plans selling her RSU to buy GOOG. X and Y can exchanges their equity at some specific ratio depending on the original cost basis. Of course, after the exchange X must pay tax when sell MSFT on the capital gain based on cost basis at which Y acquired it. Likely this is constraint by IRS. Any clear specification on this? Also, if it is not IRS, then anyone with an in-depth understanding of how brokerage system works, mind sharing why there is such a limitation to swap equity directly? #investments #irs #charlesschwab #etrade #tdameritrade
swaps traditionally dont have the liquidity to trade over the counter
If there's no liquidity, then it's a different case because then the swap can't happen under any circumstances. But OP clearly stated that liquidity is there.
Because the IRS wants taxation events to make money on
Curious if you are aware of any clear specification on it. Why then IRS allow one donating to family or close friends as “gift” equity up to $11M? Neither party incur tax at those ownership change.
Because rich ppl can lobby the govt to get laws that benefit them. Rich ppl barely benefit from this equity swap.
That would be bartering income. See: https://www.irs.gov/taxtopics/tc420
Thanks for the pointer. But say if X and Y each report $10k under barter income and deduct $10k as equity gift, net sum = 0? If so, no capital gain / other tax is applied? Please correct.
You can simply use your equity in X as your collateral to open a short position on X. Then use the proceeds to buy Y. No taxes paid.
Sorry newbie here. How short position on X benefits, if X keeps growing?
You said you were going to exchange X for Y. This basically helps you “sell” your X without actually selling X and buy Y. You are basically holding long X and short X at the same time, which is equivalent to a “sell”. But you don’t pay taxes.
You can actually do this as a total return swap - there is not a lot of liquidity for custom deals but you can do it when the notional is high enough. I don’t know that the market for doing this on a consumer level (say the usual robinhood customer) is large enough to merit creating this
An earlier poster gave an IRS link -- if you transfer appreciated assets in exchange for anything else, it is not considered a gift but a sale, and you have to recognize income on the gain. Sure if it is small enough perhaps you won't get caught, but that doesn't change the fact that it is tax fraud There are a few legit techniques similar to what you are suggesting: - X and Y (and Z, and ...) can form a partnership. Contribute appreciated assets into the partnership. Partnership holds at least 20% of value as real estate. Partners wait 7 years. After that, partnership distributes but gives back other company stock to each partner You can join "exchange funds" run by large financial firms, but you can also DIY if you happen to know people in similar positions (obviously you won't be able to track an index without knowing tons of people, but you do save a lot in fees if the $$ is high enough) - there is a new thing called a stock protection fund, but hasn't caught on much. Instead of contributing stock to a partnership, everyone contributes cash (set to a % of the stock they want to protect). The partnership has a formula for how to redistribute the $$ based on how the various stocks perform over time. This is an alternative to an exchange fund or protective stock options
All these are new to me to learn. Thanks for the tips.
Lol because of the IRS
Then why one could donate to family or close friends as “gift” equity up to $11M? Neither party incur tax at those ownership change. What if X and Y are real friends and gift these equities to each other with proper tax doc filed.
Yes. You are right that gifting is controversial and many countries do tax it too