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Barbara, Enrolled Agent
Category: Tax
Satisfied Customers: 3357
Experience:  18+ years of experience in tax preparation; 25+ years of experience as a real estate/corporate paralegal.
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I recently sold some stocks (short term gains) and

Customer Question

I recently sold some stocks (short term gains) and would like to offset the tax on the gains by buying California municipal bonds. Is this a good strategy. Can I avoid paying taxes on the gains if I use all the gains to buy California municipal bonds.
Please advise.
Submitted: 1 year ago.
Category: Tax
Expert:  emc011075 replied 1 year ago.
Hi. My name is ***** ***** I will be happy to help you.
Unfortunately you cannot postpone or avoid paying capital gains by "re-investing" into another stock or bond. Unless you are buying/selling within IRA or other retirement vehicle, every stock/bond purchase/sale is treated as a separate transaction. There's no legal way to avoid paying capital gains on stock you already sold.
I see you offline now. So if this answered your question, please take a moment to rate my response so that I may receive credit for assisting you today. However, if you need clarification, or want to discuss this issue further, let me know. Thank you.
Customer: replied 1 year ago.
I was told by an investment advisor in California that I could. Are you familiar with the tax law regarding California municipal bonds? If not, please refer my question to an advisor located in California since this website did not allow me to choose my advisor.Best,Ari
Customer: replied 1 year ago.
The situation is: I sell stocks in my individual brokerage account: I use the gains to buy municipal bonds, and avoid paying taxes on the gains. This is apparently a strategy to encourage CA residents to buy CA municipal bonds. Again, I request that you refer me to an advisor familiar with CA tax law.Thanks
Expert:  emc011075 replied 1 year ago.
Hi, Ari.
IRS (federal) tax law is same regardless where you reside and state authorities have no jurisdiction over federal government organization (IRS) There's no legal way to avoid paying capital gains on stock you already sold. It doesn't matter how you use the proceeds. If your investment adviser is telling you something else than he probably doesn't know the tax implication.
If you think you can get a different answer from somebody else, I will opt out and give a another expert a chance to respond.
Expert:  emc011075 replied 1 year ago.
Municipal Bonds are exempt from Federal and state taxes which means there's no capital gain tax when you sell it. It would have to be a municipal bond you sold, not a stock or mutual fund that would allow you to avoid capital gains. Not the other way around.
Expert:  Barbara replied 1 year ago.
Different expert here - My name is ***** ***** please allow me to provide you with additional information that you may find helpful.
Your investment adviser is most likely referring to the fact that INTEREST earned on a municipal bond is tax exempt. However, gain or loss is subject to federal income tax on the sale of such a bond, just as in the case of a taxable bond. The amount of gain or loss is equal to the difference between the sale price of the bond and the holder's tax basis in the bond (the amount the holder paid for the bond originally, including any additions to such basis, such as OID.
The following links contain excellent, detailed information which you will find helpful:
As to your original question regarding offsetting capital gains from the sale of stocks by purchasing municipal bonds (in California or elsewhere), this cannot be done.
You may want to speak with your investment adviser and request clarification.
Please let me know if I can assist you further.
Thank you and best regards,

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