Overconcentrated in your portfolio? One solution we’ve used

Our client is a retired executive who owned a significant amount of low cost basis stocks in his former company. He was worried about the concentrated position and wanted to diversify his portfolio. If he were to simply sell the stock, he would face large capital gains taxes.

The 2017 Tax Cuts and Jobs Act included a provision that created opportunity zones, providing capital gains tax incentives in exchange for investments in economically challenged areas. Opportunity zones are defined by each state as delegated low-income areas, and are certified by the Secretary of the U.S. Treasury. Specialized funds were established by investors, investing in those identified opportunity zones to improve redevelopment, real estate and infrastructure needs. The opportunity zone tax bill program allows the sale of appreciated assets, like stocks, where capital gains are invested into the opportunity zone fund. We worked with the client’s CPA tax advisor to invest a portion of his capital gains in an opportunity zone fund—which targeted a location near his childhood home—to help diversity his concentrated portfolio.

The result was an opportunity to both diversify his portfolio—reducing his concentration risk—and make a difference in the community where he grew up.

Disclosures

Case studies are for illustrative purposes only. Case studies do not necessarily represent the experiences of other clients, and they do not indicate future performance. Results may vary.

There are no assurances that any opportunity fund will qualify as a qualified opportunity fund or, even if it does qualify, that any or all of the tax benefits will be available to any particular investor. To receive maximum tax benefits, funds must remain invested for 10 years. Investing in alternative investments may be speculative, illiquid and not suitable for all clients. They are intended for investors who meet certain criteria and are willing and able to bear the unique economic risks of the investment. Investors should consider whether such investments are suitable in the light of their individual financial situation.

RBC Wealth Management does not provide tax or legal advice. All decisions regarding the tax or legal implications of your investments should be made in connection with your independent tax or legal advisor.

Investment and insurance products offered through RBC Wealth Management are not insured by the FDIC or any other federal government agency, are not deposits or other obligations of, or guaranteed by, a bank or any bank affiliate, and are subject to investment risks, including possible loss of the principal amount invested.

RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC.

David Thompson, NMLS # 1640330, Maddy Stewart, NMLS # 2579704, and George Otto, NMLS # 1839462 through City National Bank, may receive compensation from RBC Wealth Management for referring customers to City National Bank. Banking products and services are offered or issued by City National Bank, an affiliate of RBC Wealth Management, a division of RBC Capital Markets, LLC, Member NYSE/FINRA/SIPC and are subject to City National Banks terms and conditions. Products and services offered through City National Bank are not insured by SIPC. City National Bank Member FDIC.

Investment products offered through RBC Wealth Management are not FDIC insured, are not guaranteed by City National Bank and may lose value.

Read additional advisor disclosures.