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Working Paper

A Brief Guide to Pricing and Taxation of Variable Prepaid Forwards

November 6, 2024 - Joseph Liberman Nathan Sosner

Variable prepaid forward (VPF) contracts have been developed as a solution to hedging the risk of concentrated low-basis stock. Using options pricing theory, we develop a VPF pricing model that helps understand the VPF prepayment amount and the cash flows and tax liabilities upon VPF rolls.

Can Capital Losses Offset Gains from the Sale of Low-Basis Real Property?

November 1, 2024

In general, capital losses realized on stocks or other assets may offset capital gains, but not ordinary income, from the sale of a property. Therefore, it is important to understand which portion of the gain from the sale would be treated as capital gain and which would be treated as ordinary income.

Tax Matters

Separating the Wheat from the Chaff

October 8, 2024

Investors seeking tax efficiency must look for strategies motivated by a pre-tax investment rationale, otherwise known as “economic substance.”

Tax Matters

Levering Up to Do Good

July 9, 2024

Long/short tax aware strategies can be a win-win for the charitably inclined: larger donations for the charity and larger tax benefits for the donor.

Journal Article

Levering Up to Do Good: Direct Long-Short Investing and Charitable Giving

April 23, 2024 - Stanley Krasner Joseph Liberman Nathan Sosner Sydney Filler

We use historical strategy simulations to evaluate the advantages of donating appreciated stock in the context of tax-aware long-short factor strategies. We find long-short strategies exhibit several advantages over long-only investments.

Tax Matters

A 3-for-1 Solution for Concentrated Stock

April 9, 2024

Long/short tax-aware factor strategies may provide the means to offset gains resulting from a transition from a concentrated stock to a diversified portfolio.

Tax Matters

AQR Factor Research Papers Win Prestigious Academic Awards

March 12, 2024

Factor investing (combined with tax-aware implementation) can offer investors substantial rewards in the form of both pre-tax returns and tax benefits. Two papers by our colleagues recently won highly prestigious awards from top academic and practitioner journals for their research on factor investing, demonstrating our commitment to top-notch factor research.

Working Paper

Combining VPFs and Tax-Aware Strategies to Diversify Low-Basis Stock

March 7, 2024 - Joseph Liberman Nathan Sosner

We illustrate how combining VPFs (variable prepaid forwards) with tax-aware strategies can help diversify low-basis stock and thereby improve after-tax wealth accumulation. Long-run after-tax wealth outcomes are significantly better when a VPF is combined with tax-aware long-short factor strategies rather than with other alternatives, such as a direct-indexing strategy or a market index fund.

Tax Matters

Making VPFs Work Harder for You

March 1, 2024

There is a range of solutions aimed at reducing the risk of concentrated stock tax-efficiently: completion portfolios, exchange funds, charitable giving, just to name a few. But for some investors, Variable Prepaid Forwards (VPFs ) are a favorite. It’s not hard to see why.

Tax Matters

The Enduring Appeal of Gain Deferral, Part 2

February 6, 2024

Our previous post showed the power of deferral for building wealth, but one key assumption in that analysis was that tax rates remain constant. In this post, we discuss whether gain deferral is still a good idea if you think tax rates might be higher in the future.