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WASH SALES

Investors may not sell a security at a loss and shortly after repurchase the security, or a security that is substantially the same, to reestablish the position if they intend to claim the loss for tax purposes and deduct the loss from their ordinary income. This is known as a wash sale, and the 1RS will disallow the loss. In order to claim the loss, the investor has to have held the securities for 30 days and must wait at least 30 days before repurchasing the same securities or securities that are substantially the same. The total number of days in the wash sale rule is 61.

Securities that are substantially the same include call options, rights, warrants, and convertibles.

TAXATION OF INTEREST INCOME

Interest earned by investors may or may not be subject to taxes. The following table illustrates the tax consequences of various interest payments received by investors:

Resident

Investment

Taxation

New Jersey

Corporate bond

All taxes

New Jersey

CMO

All taxes

New Jersey

GNMA

All taxes

New Jersey

T bond

Federal taxes only

New Jersey

New York muni bond

New Jersey taxes only

New Jersey

New Jersey muni bond

No taxes

New Jersey

Puerto Rico/Guam muni bond

No taxes

TAKENOTE!

Investors may deduct margin interest only to the extent of their investment income. Investors may not deduct margin expenses from municipal bonds.

INHERITED AND GIFTED SECURITIES

If an investor dies and leaves securities to another person, that person's cost base for those securities is the fair market value of the securities on the day the decedent died. The cost base of the original investor does not transfer to the person who inherited the securities. Any capital gain on the sale of inherited securities will be considered long term. If during the course of an investor's life, the investor gives securities to another person, the recipient will have two cost bases. The recipient's cost base for determining a capital gain will be the giver's cost base; the recipient's cost base for determining a capital loss will be the giver's cost base or the fair market value of the securities on the day the gift was made, whichever is less.

 
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