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.