Voiceover Audio: Welcome to the Enjoy More 30s Family Finance podcast.

The only podcast dedicated to making life more enjoyable for young families by hitting on the financial topics that tend to weigh on us, stress us out, and distract our focus from simply enjoying life.

Joseph Okaly: Hello, and welcome to the Enjoy More 30s Family Finance podcast, REMIX for Rising Rates.

In 2022, there have been significant declines across pretty much every major asset class through October.

With rates rising significantly for the first time really in a long time, it can be a bit of an unnerving experience.

This series is going to attempt to help you with that going back and re-mixing a number of past episodes to help you emotionally navigate what are turbulent times so far in 2022.

Each week, I'll be re-mixing a different episode bringing what I would say are timeless concepts into focus of the present day situation.

As always, before I begin, please share and like please leave reviews.

I'd love to reach and help as many young families out there just like you.

Today's episode is Step Up!

The Gain Is Gone - REMIX.

Now this original episode, we spoke about how if you inherit what they call taxable, so non IRA or annuity type assets, so really essentially, if money's in a joint account or an individual account, something like that, as of 2022, that entire gain would be forgiven.

Today, though, we're going to expand on that point, as it has to do with really the opposite of that, losses, potentially in 2022.

Now, the story I shared originally then was when I went to Disney with my wife, Lauren, and this is back before we had kids, the simpler times in life, it was way easier to move around.

Two adults can really fly through the Disney parks and hit everything in just a couple of days.

The one time that we really hit a bit of a wrench in our plans is we were wanting to get on a ride at Hollywood Studios called Toy Story Midway Mania, where you can sit down in this kind of cart and you shoot at things with 3D glasses as you're spinning around these carnival style games.

It's pretty cool.

The problem though, is when we got there, we hit a really big line for the first time since we were running around.

And as we were debating what to do, should we go somewhere else circle back around, all of a sudden this kind of side door opened up out of nowhere, a cast member asked how many were in our party.

We answered two which was the right answer.

And they ushered us right through the door into the side entrance all the way up to the front of the line.

It was it was a beautiful thing.

So when it comes to capital gains being forgiven, when you inherit assets, it's kind of like that side door and can be a beautiful thing to avoid taxation on built up gains.

So just to kind of give a broader spectrum of what this means, if your parents bought, let's say, ABC stock for $50 and now it's worth $500, if they were to sell it today, they would have to pay capital gains tax on that difference.

That $450 difference.

If they were to pass away, though, again, according to 2022 rules, that gain would be forgiven.

So you would let's say inherit that $500 and that would be your kind of starting point.

You wouldn't have to pay tax on that $450 growth that they experienced, that whole thing would kind of be thrown out and your new starting point would be the $500 value of where it is today.

How this applies, though to 2022 may be on the loss side of things.

So while I said the gain would be forgiven, what's really happening is just that the starting point is being reset for all the holdings.

This is true for unrealized gains, kind of what I just went through.

But it's also true for unrealized losses, which are actually a good thing from a tax perspective.

If your parents paid $500 for ABC stock, and it went down to $50, so the reverse, then if they sold it when they were alive, they would receive a $450 taxable loss, which could help offset their tax bills against gains or otherwise.

If they passed away though before selling it, that loss would also be lost.

And your starting point as the person who inherited it would be just that $50 of what it's worth today.

So while avoiding gains is possible, so is missing out on losses.

And for 2022 there may be losses all around to harvest, you know, that's what they call it, harvesting the losses, both for you and maybe your parents as well.

So if you look at your portfolio, you don't just have ABC stock, you have lots of other things.

You might have stock mutual funds, you might have bond funds, each has its own realized gain or loss associated with it.

So taking a look at what this is and if harvesting any losses makes sense for your situation, this would potentially be worth looking into for something to do before the end of the year with your advisor, most likely, if you're not capable of doing that on your own.

Now, there are some rules called wash sale rules.

So you need to be aware of a couple things going on.

Again, that's where if you have an advisor where they could be of help with it.

And how it would also relate, though, then to your parents, which if you do have older parents, realizing some losses for them may especially make sense.

Again, you know, if you don't use them, you lose them.

And so if you're going to look at your parents' portfolios, the bond funds or the fixed income funds, they tend to be the place where losses tend to accumulate.

Because for those funds, most of the gain tends to be tied to the interest.

The interest, even if you reinvest it into the account, the interest is taxable at the end of every year.

Again, this is for any joint, individual, any non retirement or annuity account, this is how it works for the bond piece.

So that interest is reinvested every year but you pay tax on it.

So that plays games with how the taxes work, they call it the cost basis.

So just that would be a good area to look into if you're doing it for yourself or for your parents as well.

So again, not recommending that you that you harvest the losses, not telling you to definitely do it.

But it is something that could potentially be an advantage based on what your full situation might look like.

Thanks for tuning in today, which will be our last episode for 2022 here, remix back around with us in 2023 as we continue to try to help you navigate your financial situation, help you make better decisions and help you just not worry about your finances as much so you can go out and enjoy life.

As always, please remember to review and share for others.

And if you need any help, don't hesitate in reaching out.

I probably have helped someone just like you.

Until next week.

Thanks for joining me today and I look forward to connecting with you again soon.

Voiceover Audio: The conversations on this show are Joe's opinions and provided for general information purposes only.

They do not constitute accounting, legal, tax or other professional advice for your specific situation.

You should always seek appropriate advice from a financial advisor, accountant, lawyer or other professional before acting upon any content or information found here first.

Joe is affiliated with New Horizons Wealth Management LLC, a branch office of TFS Securities, Inc., and TFS Advisory Services an SEC Registered Investment Advisor, Member FINRA/SIPC.