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  • EGO45 EGO45 May 29, 2002 2:01 PM Flag

    LTI and taxes

    While I had nothing better to do at such boring day in a market I run some numbers and what I come up with.
    In my imaginary example I assumed that I'm an investor who collected 1000 shares of ELN at average cost of $25 considering my old and recent purchases.
    I also assume that I'm in 35% overall tax bracket.

    If I sell ELN now, I'll realize 15k loss and in exchange will receive 5.25k tax credit which is equivalent of cash for most people anyway.

    However, I'm a strong beleiver in ELN's future price appreciation and see 30+ within a year or so, but not within next 7 month till end of this fiscal year.
    I also know (reasonably assume) that within one month nothing could drastically change ELN's price structure (AGM is 2 month ahead and SEC thing is X-month ahead).
    Therefore, I'll use proceeds from the sale (10k) to buy it back 30 days later. Even if price will be 25% higher then, I'll end up with 800 shares instead of 1000.

    What happened? I lost 200 sh, but gained 5.25k i.e. I sold my 200sh at 26.25 and reduced my cost basis from 25 to 12.5, which in turn will give me more flexibility in my future selling decision.

    I think that many LTI could use this line of thinking now, due to the fact that in Nov-Dec they will compete with huge crowd of tax-loss sellers, while now they virtually have no competition.


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