2025 Portfolio

[John Hjorth]

5 hours ago, 73 Reds said:

This works well when your investments are held in tax-deferred accounts.  Otherwise, you substantially reduce your buying power every few years.  Deferred taxes generates solid investment results even without well-above average returns.  

 

Yes, @73 Reds,

 

Deferred taxes are our float, with cost of float at zero, unless there in certain years are changes in the local / national tax regime.

[73 Reds]

14 minutes ago, John Hjorth said:

 

Yes, @73 Reds,

 

Deferred taxes are our float, with cost of float at zero, unless there in certain years are changes in the local / national tax regime.

Yep, and when anyone suggests that I sell Berkshire after decades of holding some of my oldest shares, the very thought of relinquishing free leverage on such a holding makes me chuckle.

Edited December 12 by 73 Reds
spelling

[John Hjorth]

1 hour ago, 73 Reds said:

Yep, and when anyone suggests that I sell Berkshire after decades of holding some of my oldest shares, the very thought of relinquishing free leverage on such a holding makes me chuckle.

 

I agree, @73 Reds,

 

The 'problem'/'issue' with this kind of float is, that we don't receive an account statement of its status at each year end.

 

Out of sight, out of mind.

 

Every year, I perform a 'household consolidation', where calculated deferred taxes are provided for as a liability, to get to our household net worth.

 

By doing that, one never forget it. It's deferred, but it's there, and it's real, because it exists. And it's also up and to the right! -So, I changed the spreadsheet, so latest year is to the left! 

Edited December 12 by John Hjorth

[Munger_Disciple]

23 minutes ago, John Hjorth said:

 

I agree, @73 Reds,

 

The 'problem'/'issue' with this kind of float is, that we don't receive an account statement of its status at each year end.

 

Out of sight, out of mind.

 

Every year, I perform a 'household consolidation', where calculated deferred taxes are provided for as a liability, to get to our household net worth.

 

By doing that, one never forget it. It's deferred, but it's there, and it's real, because it exists. And it's also up and to the right! -So, I changed the spreadsheet, so lastest year is to the left! 

 

I agree with you @John Hjorth & @73 Reds about deferred taxes being a zero cost float that is very much accretive to investor returns. The only negative is that one must be sure that the company is "bullet proof" which BRK passes with flying colors.

 

I would add that your heirs will get a step-up in basis when your estate is settled in the US, so they wouldn't owe any taxes on gains up to that point. In other words, deferred taxes become zero taxes at that point. It won't help you very much but it will help your heirs. 

Edited December 12 by Munger_Disciple

[John Hjorth]

7 hours ago, Munger_Disciple said:

I agree with you @John Hjorth & @73 Reds about deferred taxes being a zero cost float that is very much accretive to investor returns. The only negative is that one must be sure that the company is "bullet proof" which BRK passes with flying colors.

 

I would add that your heirs will get a step-up in basis when your estate is settled in the US, so they wouldn't owe any taxes on gains up to that point. In other words, deferred taxes become zero taxes at that point. It won't help you very much but it will help your heirs. 

 

@Munger_Disciple,

 

One can also explain it by being the cheapest margin available to anyone, and add to that, it's non-callable for the margin provider. The only margin requirement as collateral is patience - a lot of it! - the more, the merrier!  - It simply works great.

[Charlie]

12 hours ago, Munger_Disciple said:

I agree with you @John Hjorth & @73 Reds about deferred taxes being a zero cost float that is very much accretive to investor returns. The only negative is that one must be sure that the company is "bullet proof" which BRK passes with flying colors.

 

I would add that your heirs will get a step-up in basis when your estate is settled in the US, so they wouldn't owe any taxes on gains up to that point. In other words, deferred taxes become zero taxes at that point. It won't help you very much but it will help your heirs. 

@Munger_Disciple Is this the law in the U.S., that if somebody dies the deferred taxes of every equity investment for the heirs don´t have to be paid? Does deferred taxes become zero taxes, e. g. for the Munger family?

[Blugolds]

52 minutes ago, Charlie said:

@Munger_Disciple Is this the law in the U.S., that if somebody dies the deferred taxes of every equity investment for the heirs don´t have to be paid? Does deferred taxes become zero taxes, e. g. for the Munger family?

 

Basically yes, you get a "stepped up cost basis", the CB becomes the value at the time of death, gains after that, if sold will incur taxes. 

 

IE. Tom buys BRK 20 years ago with cost basis of $50, Tom dies today with BRK @ $460, shares transfer to Tom's son, Son's new cost basis on those inherited shares is $460, no tax owed. If Tom sells shares for $500 he pays tax on $40 gain. 

 

There is a difference between inheritance tax and estate tax. There is a dollar limit to this, and some states have taxes independent of federal (so even if you are below the threshold for federal taxes your state may want a cut) , however many of these can be avoided by putting assets in a trust. 

 

Generally for every instance Uncle Sam wants to stick his hand in your pocket with regard to large sums of money outside of W2 income, he also gives you a way to avoid it, because generally the people in those situations either create the laws or have enough money to influence those who do, and they can afford to pay legal experts to ensure they take advantage of every way out. 

 

Im not taking a political position with that statement, its just the rules of a game, since the rules dont seem to change significantly, the best you can do is learn the rules and/or pay those who play well to be on your team if you want to win. 

Edited December 13 by Blugolds

[Dinar]

3 hours ago, Charlie said:

@Munger_Disciple Is this the law in the U.S., that if somebody dies the deferred taxes of every equity investment for the heirs don´t have to be paid? Does deferred taxes become zero taxes, e. g. for the Munger family?

No, it is not.  It only works if the asset is included in your taxable estate.  If it is not pat of your taxable estate (say in a non-revocable trust that is not drafted specifically to be included in your taxable estate) then there is no step up in basis.  

[73 Reds]

30 minutes ago, Dinar said:

No, it is not.  It only works if the asset is included in your taxable estate.  If it is not pat of your taxable estate (say in a non-revocable trust that is not drafted specifically to be included in your taxable estate) then there is no step up in basis.  

True, but you've already transferred ownership of the stock(s) by funding a non-revocable trust and you may have received other tax benefits on the date(s) of transfer.   The stepped-up basis remains one of the most effective ways "average" people can transfer wealth tax-free with no need for estate planning of any kind but of course you have to die first.  

[sleepydragon]

4 hours ago, Blugolds said:

 

Basically yes, you get a "stepped up cost basis", the CB becomes the value at the time of death, gains after that, if sold will incur taxes. 

 

IE. Tom buys BRK 20 years ago with cost basis of $50, Tom dies today with BRK @ $460, shares transfer to Tom's son, Son's new cost basis on those inherited shares is $460, no tax owed. If Tom sells shares for $500 he pays tax on $40 gain. 

 

There is a difference between inheritance tax and estate tax. There is a dollar limit to this, and some states have taxes independent of federal (so even if you are below the threshold for federal taxes your state may want a cut) , however many of these can be avoided by putting assets in a trust. 

 

Generally for every instance Uncle Sam wants to stick his hand in your pocket with regard to large sums of money outside of W2 income, he also gives you a way to avoid it, because generally the people in those situations either create the laws or have enough money to influence those who do, and they can afford to pay legal experts to ensure they take advantage of every way out. 

 

Im not taking a political position with that statement, its just the rules of a game, since the rules dont seem to change significantly, the best you can do is learn the rules and/or pay those who play well to be on your team if you want to win. 

But how about inheritance tax sort of thing? If say someone has 20 millions of stocks at dealth, doesnt the heir have to pay a big inheritance tax? And why putting in an irrevocable trust can avoid that inheritance tax (is it because the tax is already paid as gift tax when money is transferred into the trust)? Thanks!

 

[oscarazocar]

6 minutes ago, sleepydragon said:

But how about inheritance tax sort of thing? If say someone has 20 millions of stocks at dealth, doesnt the heir have to pay a big inheritance tax? And why putting in an irrevocable trust can avoid that inheritance tax (is it because the tax is already paid as gift tax when money is transferred into the trust)? Thanks!

 

 

There is no federal inheritance tax in the U.S.  6 states have inheritance taxes: Iowa, Kentucky, Maryland, Nebraska, New Jersey, Pennsylvania, that range from from 1% to 16% with various thresholds.

 

https://www.cnbc.com/select/what-is-inheritance-tax/

 

Say you have a wealth parent and their child living 20 minutes away from each other right across state lines in the NYC suburbs .  If the parent lived in NY and the child lived in NJ, they would be hit by both NY estate tax and NJ inheritance tax.  If the locations were switched and the parent lived in NJ and the child lived in NY, there would be neither.  The vagaries of the tax system - this impacted a friend recently.

[73 Reds]

10 minutes ago, sleepydragon said:

But how about inheritance tax sort of thing? If say someone has 20 millions of stocks at dealth, doesnt the heir have to pay a big inheritance tax? And why putting in an irrevocable trust can avoid that inheritance tax (is it because the tax is already paid as gift tax when money is transferred into the trust)? Thanks!

 

There is no Federal inheritance tax though some states have an inheritance tax.  The Estate tax (as opposed to inheritance tax) is paid by the Estate of the decedent prior to distribution. It is not a liability of the heirs.   Transferring assets to a Non-revocable Trust during your lifetime removes those assets from your ownership - the Trust has its own taxpayer ID number and pays its own taxes.  There can be tax benefits to the donor (creator of the Trust) particularly if beneficiaries are charitable organizations in addition to removing the assets from your taxable estate.

[Charlie]

7 hours ago, Blugolds said:

Basically yes, you get a "stepped up cost basis", the CB becomes the value at the time of death, gains after that, if sold will incur taxes. 

 

IE. Tom buys BRK 20 years ago with cost basis of $50, Tom dies today with BRK @ $460, shares transfer to Tom's son, Son's new cost basis on those inherited shares is $460, no tax owed. If Tom sells shares for $500 he pays tax on $40 gain.

@Blugolds, Wow, that is a very good tax rule.

 

U.S citizens should be very lucky to have it!!!

[Munger_Disciple]

8 hours ago, Charlie said:

@Munger_Disciple Is this the law in the U.S., that if somebody dies the deferred taxes of every equity investment for the heirs don´t have to be paid? Does deferred taxes become zero taxes, e. g. for the Munger family?

 

@Charlie Others have responded to your question already but in essence your understanding is correct. I would add that in the US if the estate is below a certain exclusion threshold (roughly $28mm for a married couple), there is no estate tax at the federal level. Whether estate tax is paid or not, the heirs of the estate get a step up in basis. 

[Charlie]

3 hours ago, Munger_Disciple said:

@Charlie Others have responded to your question already but in essence your understanding is correct. I would add that in the US if the estate is below a certain exclusion threshold (roughly $28mm for a married couple), there is no estate tax at the federal level. Whether estate tax is paid or not, the heirs of the estate get a step up in basis. 

@Munger_Disciple, Thank you!

[Maverick47]

I’m not a US investment tax expert by any means, but I believe that in community property states, of which California is one, that if a married couple’s assets in a taxable brokerage account are considered community property before the death of one of the spouses, then the surviving spouse receives a step up in cost basis to the market value at the date of death on 100% of the account.

 

(In non-community property US states, I believe the surviving spouse would get a step up only on the half of the account deemed to have belonged to the spouse who died.)

 

In both cases though, this would be a nuance that might provide an additional incentive to let  unrealized capital gains accumulate in a taxable community property investment account, since it would be a potential benefit for the surviving spouse, and not just something that would benefit eventual heirs.

 

Has anyone on this COBF board had any experience with either of these US tax scenarios?

 

Edited December 16 by Maverick47
Correction