“Just because something is in the federal tax code, there’s no guarantee every state follows suit in a similar way. We had a client who’d been living in Georgia and wanted to move back home to Pennsylvania. That year, he had a highly appreciated security with a low cost basis. He also had a $5 million capital loss carryforward from his prior advisor. The client was already on a glide path to reduce his exposure in his highly appreciated, concentrated stock, but the new problem was that the state of Pennsylvania does not recognize the federal capital loss carryforward the way Georgia does. Could moving when he wanted to really cost him an additional $150,000 in state taxes? We found a solution.”
Waldron recommended the client reset his tax basis by recognizing the capital gain of his stock and immediately buying it back. He did just that, stepping up his cost basis from $10,000 to $5 million prior to establishing residency in Pennsylvania. Since the stock sale was at a gain, and not a loss, it was deemed to not fall under the IRS ‘wash sale rule’, which prohibits the sale and re-purchase of identical or similar stocks within 30 days in an effort to avoid taxes. Once the client was back in the state of Pennsylvania, he continued his long-term plan to reduce his overall exposure to the single stock, but did so in a way that was exempt from Pennsylvania state tax.