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Hold, or Sell and Reinvest?
Use this worksheet to see if you're wise to take profits in a winner and reinvest in something with better prospects over the next
Our example is based on an investor with no state capital-gains tax and stock held more than a year, who plans to keep holding it or an alternative for three more years. (Worksheet does not account for annual taxation of dividends at higher ordinary income tax rates.)
What is the current total value of the stock you may sell?
What was your total cost?
Subtract line 2 from line 1. This is your capital gain
If you've held the stock more than a year, enter your combined state and federal long-term capital-gains tax rate. If you have held it a year or less, enter your combined state and federal income tax rate
Multiply line 3 by line 4 for your capital-gains tax liability
Subtract line 5 from line 1. This is your reinvestable capital
What do you expect your current stock's return will average annually over the next
years, in percent?
This is the value you expect by holding your current stock for
What do you expect your alternative investment's return will average annually over the next
years, in percent?
This is how much you can expect in
years by selling your stock and reinvesting
Figure your future capital gain by subtracting line 6 from line 10
Enter your future combined state and federal long term capital-gains tax rate
Multiply line 11 by line 12 for your capital-gains tax liability
Subtract line 13 from line 10 for your aftertax proceeds
Figure your future capital gain on current stock by subtracting line 2 from line 8
Multiply line 15 by line 12 for your capital-gains tax liability
Subtract line 16 from line 8. This would be after-tax proceeds on your current stock
Subtract line 17 from line 14. If the result is negative, selling doesn't make sense. If it's positive, reinvest your capital in the stock with better prospects, but only if the difference covers transaction costs
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