Tax Benefit Programs

You may consider investments that generate allowable losses or tax credits. For example, oil and gas working interests, a low income housing limited partnership or energy credit program. The tax benefits flow through the partnership to the client. These credits offset the client's tax liability thereby reducing the tax impact of the client's capital gains. The downside is that these investments assume a long-term commitment and are not very liquid.

Specialized Small Business Investment Company

Capital gains on the sale of publicly traded securities can be "rolled over" tax-free if the sale proceeds are used to purchase an interest in a "Specialized Small Business Investment Company" (SSBIC). SSBICs are highly specialized and speculative (they provide assistance to small businesses owned by socially or economically disadvantaged persons). The rollover must be completed within 60 days of the sale and is limited to $50,000 of gain rolled over per year ($250,000 for corporations) with a lifetime maximum of $500,000 (1,000,000 for corporations). For more information on the availability of publicly traded SSBICs go to the Small Business Administration web site at sba.gov.

Sale of Company Stock to an ESOP

If a business owner has realized a capital gain because he/she sold stock to an employee stock ownership plan, he/she can defer recognizing the gain if he/she uses the proceeds to purchase qualified replacement property within 12 months after the sale to the plan. This is called a Section 1042 exchange.