Selling Individual Stock To Pay Down Debt

[homeontheloose]

Hello Mustachians,

About 15 years ago I was gifted $10,000 of single stock. I set up the dividends to reinvest and largely forgot about it in the intervening years.
That stock has done rather well, splitting a few times and growing to a current value of $40,000.

We are carrying $5,000 in student loans at 6.8% and $19,000 in a RV loan (please don't facepunch me!) which is our "summer home" while we rent out our house during the summer months.

We are currently in the 15% tax bracket as we make $64,000 total in W2, dividend and rental earnings.

So, my question:
How much of this stock should we sell off?
Ideally, I would like to nuke all of the $24,000 debt, but would like to do so in a tax efficient way.

Thank you so much for reading my newbie questions. I have so much to learn! We are very recent Mustachian converts, having found MMM and the FI/RE movements from the Tim Ferriss interview. I've been reading the entirety of the MM blog this spring (currently up to 2014!) and absorbing as much as I can from other sites such as The Mad Fientist.

[Dicey]

Need a lot more info to make an informed decision. How much do you have in other savings/investments? Do you have an EF? Any other debt?

Do you itemize or take the standard deduction? I'm assuming the former. You should be making enough on the summer rental to more than cover the cost of the RV, plus the interest on it would be tax deductible.

Selling this stock is likely to cost more in taxes than any money you might save in interest on your current debt.

If your credit's good, consider a 0% CC balance transfer for the SL and just throw new money at it until it's gone. Mustachian skills will make this a breeze.

Spending this money is about the last thing I'd recommend. The only way I'd consider it is if you were looking to create a balanced portfolio, in which case, refer to Q1.

Kinda sounds like this money is burning a hole in your pocket. Don't be too eager to absolve your past financial decisions with this money.

[MDM]

We are currently in the 15% tax bracket as we make $64,000 total in W2, dividend and rental earnings.

So, my question:
How much of this stock should we sell off?

Assuming standard deduction and two personal exemptions, and the $64K base given in the OP, you can sell stock with $32,700 in capital gains (not the amount of the sale - the amount of the profit on the sale) and pay $0 in tax on it.

In other words, there is a very good chance (depending on your exact basis in the stock) you could sell it all for no tax.  Does that make sense?

[homeontheloose]

Thank you Dicey and MDM for your replies!

To Dicey's questions, we have a small cash emergency fund, not much else in assets or debts except our home/mortgage. We finally managed to get out of credit card debt this year and that freedom has left me excited to continue to eliminate the rest of our debt in order to free up more monthly cash to move into investment accounts.

The desire to sell off these assets to pay down our debt does come from a place of wanting to minimize future monthly/fixed costs so that we can move into funding our IRA and investment accounts. Specifically to add diversity and to access the power of indexing.  We are currently only funding our IRAs to our employer match and would like to move into fully funding these accounts this year.

My thinking, currently, is to sell enough to zero out the student loan. Then let the van loan ride at least through the summer so we can use the profit from our rental to help pay a good portion. As we move into the fall, I will use the monthly cashflow savings(from no student loan) to fully fund our IRAs (first) then look at opening a taxable Vanguard account next year.

Again, than you for your replies and advice!

[Dicey]

You want to sell off a highly appreciated investment so you can start investing again later, after you've paid off some minor debt? That's shooting yourself in the foot and then shooting yourself in the other foot after the first wound heals. No, just NO! This makes no sense! Yes, diversification is important, so put all new savings toward that goal

It's great that you've killed your CC debt, but what you're suggesting next is bass-ackwards.

Please re-read my original answer.

[MDM]

See Investment Order for the generic answer.

In this case, most - perhaps all - of the stock can be sold for $0 taxes.  Assuming that is done, the question becomes "what to do with the cash from the stock sale?"

A 6.8% loan, even with the SL interest deduction making it ~5.8% effectively, is on the high side.  Don't see the RV loan interest rate...?

[Babybalrog]

We are currently in the 15% tax bracket as we make $64,000 total in W2, dividend and rental earnings.

So, my question:
How much of this stock should we sell off?

Assuming standard deduction and two personal exemptions, and the $64K base given in the OP, you can sell stock with $32,700 in capital gains (not the amount of the sale - the amount of the profit on the sale) and pay $0 in tax on it.

In other words, there is a very good chance (depending on your exact basis in the stock) you could sell it all for no tax.  Does that make sense?

If you have tax space available as shown above, consider tax gain harvesting some of those stocks for the next few years until you get them up to par.
http://www.madfientist.com/tax-gain-harvesting/

The loan % is a little high and I would consider paying it off quickly, but not necessarily by selling stocks. The habits you form attacking your debt are learned by doing, not by using a windfall. That will make you better able to save and build your stash.

[Drifterrider]

Something I haven't seen addressed:  Is the stock paying you a dividend?

[MDM]

Something I haven't seen addressed:  Is the stock paying you a dividend?

About 15 years ago I was gifted $10,000 of single stock. I set up the dividends to reinvest and largely forgot about it in the intervening years.