I am interested in buying a small business for $150K. In order to finance the acquisition, I plan to use funds from my personal brokerage account (TD Ameritrade). I will sell $150K in stocks from the brokerage account then use the cash proceeds to purchase the assets of the target business. This will result in my having to pay capital gains tax on the stock sale. Instead, is it possible for me to exchange my stocks for the assets of the target business and thus avoid paying capital gains tax? If this is possible how is it typically structured and does it offer any tax advantages to the seller? The stocks in question are S&P 500 and DJIA index ETFs.

  • 1
    that's slick ! unfortunately, my guess is the IRS has thought of this, and, they will just value it as the prevailing stock price at the time :/ :/
    – Fattie
    Feb 2 '21 at 16:34
  • +1 for the Fat man with the correct guess ;->) Feb 2 '21 at 17:15

Barter is considered revenue and is therefore deemed a form of income by the IRS and must be reported as taxable income. The fair value must be estimated though in the case of securities, it's fully known.

Parties that barter must issue and exchange a Form 1099-B and a copy must be filed with the IRS.

  • Does the receiver of the stocks inherit the cost basis of the ETFs? Or does the seller realize a capital gain upon transfer and is then responsible for capital gains tax?
    – gaefan
    Feb 2 '21 at 20:38
  • I have no clue but I would think that the seller would realize the capital gain because the IRS never passes up an opportunity to tax and take their pound of flesh. Feb 2 '21 at 20:40

A capital-gains deferring exchange is allowed in real estate (1031 exchange) but not in stocks.

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Not the answer you're looking for? Browse other questions tagged or ask your own question.