*Official* BBCWatcher club

[BBCWatcher]

There are also potential capital gains tax considerations — including whether a home qualifies for the primary residence tax break at the time it's sold.

 

[celtosaxon]

There are also potential capital gains tax considerations — including whether a home qualifies for the primary residence tax break at the time it's sold.

That’s right - - and since the property is titled under my NRA spouse alone, there is a major incentive to selling it prior to becoming US taxable. At current property valuations, it would definitely exceed the primary residence exclusion, even for a couple, by a sizable 6 figure amount. The tax due would pay for at least one year of unsubsidized college expenses.

 

[BBCWatcher]

That’s right - - and since the property is titled under my NRA spouse alone, there is a major incentive to selling it prior to becoming US taxable. At current property valuations, it would definitely exceed the primary residence exclusion, even for a couple, by a sizable 6 figure amount. The tax due would pay for at least one year of unsubsidized college expenses.

Yes, I think in that event the cost basis dates all the way back to the purchase date, not the date of physical entry into the U.S. Date of physical entry is usually when the tax liability starts. She would get to subtract various allowed home maintenance expenses along the way from the sales proceeds in determining the net capital gain. But it’d still be pretty ugly if she’s held the house for a long time.

If she thinks she’ll certainly or almost certainly return to Singapore to that home and cease being a U.S. Permanent Resident (and before tax expatriation complications set in) then from a tax point of view it seems OK to keep the house in Singapore. Rental income would be U.S. taxable, but that’ll be after Singapore takes its share (Foreign Tax Credit). And there are some tax breaks for landlords. If she should predecease you (God forbid) there shouldn’t be estate tax complications, and there shouldn’t be ABSD issues in Singapore either.

 

[celtosaxon]

Yes, I think in that event the cost basis dates all the way back to the purchase date, not the date of physical entry into the U.S. Date of physical entry is usually when the tax liability starts. She would get to subtract various allowed home maintenance expenses along the way from the sales proceeds in determining the net capital gain. But it’d still be pretty ugly if she’s held the house for a long time.

If she thinks she’ll certainly or almost certainly return to Singapore to that home and cease being a U.S. Permanent Resident (and before tax expatriation complications set in) then from a tax point of view it seems OK to keep the house in Singapore. Rental income would be U.S. taxable, but that’ll be after Singapore takes its share (Foreign Tax Credit). And there are some tax breaks for landlords. If she should predecease you (God forbid) there shouldn’t be estate tax complications, and there shouldn’t be ABSD issues in Singapore either.

I have the same understanding. The original cost basis can be carried in, and if not realized, carried out (provided deemed expat rules aren’t triggered). Becoming a tax refugee (renouncing) within 7 years of US tax residency is an option, but I can’t predict. We’ll probably follow our kids around and hopefully get to spend time with grandkids. I suspect we will hit the thresholds for the deemed expat rules (for assets) by that time (or keep everything under my name, but then moving it back is a pain). If that happens, we might decide to just stay US taxable forever. One consideration; our condo here is freehold so we won’t need to sell it anytime soon, unless it goes enbloc. That’s my fear, especially after the exemption expires, yikes.

 

[BBCWatcher]

One consideration; our condo here is freehold so we won’t need to sell it anytime soon, unless it goes enbloc. That’s my fear, especially after the exemption expires, yikes.

I think she’s still OK with an enbloc sale if she can execute a Section 1031 exchange, i.e. simply buy another home somewhere outside the U.S. in that event. Of course there are a few rules to follow.

As a rental property it should be eligible for a U.S. depreciation deduction for up to 30 years starting from when it’s first rented out. That deduction is rather nicely designed for Singapore since land cannot be depreciated, and most homes in Singapore aren’t landed.

Weirdly, she might qualify for a U.S. tax deduction for travel expenses to/from Singapore to manage her rental property. Check those rules carefully, of course. But an effective discount on air fare and some other travel expenses would be nice wouldn’t it?

 

[celtosaxon]

I think she’s still OK with an enbloc sale if she can execute a Section 1031 exchange, i.e. simply buy another home somewhere outside the U.S. in that event. Of course there are a few rules to follow.

As a rental property it should be eligible for a U.S. depreciation deduction for up to 30 years starting from when it’s first rented out. That deduction is rather nicely designed for Singapore since land cannot be depreciated, and most homes in Singapore aren’t landed.

Weirdly, she might qualify for a U.S. tax deduction for travel expenses to/from Singapore to manage her rental property. Check those rules carefully, of course. But an effective discount on air fare and some other travel expenses would be nice wouldn’t it?

I can’t imagine how we would reinvest 7 figures in another rental property, unless we buy another unit here in SG.

The problem is that she technically owns another property here (belongs to her parents, but somehow it got titled under her and her sister). So this would be a second property, and the ABSD for replacing this unit would be steep. Do you know if a 1031 exchange is valid if switched to my name (I have no properties here and get 0% ABSD)?

 

[BBCWatcher]

I can’t imagine how we would reinvest 7 figures in another rental property, unless we buy another unit here in SG.

The exchange would have to be to a non-U.S. home to qualify. So yes, that’s the idea.

The problem is that she technically owns another property here (belongs to her parents, but somehow it got titled under her and her sister). So this would be a second property, and the ABSD for replacing this unit would be steep. Do you know if a 1031 exchange is valid if switched to my name (I have no properties here and get 0% ABSD)?

I'm not sure. I know the funds have to be held in escrow by a third party, and the swap has to be completed within 180 days (so no long escrow). Meaning you have to find a trustworthy escrow agent in Singapore who knows what the heck they're doing, why they're doing it, and a bit about the intersection between Singapore and U.S. tax rules. I kind of doubt the escrow requirement would allow another owner to come into the picture, even if it's a joint filing spouse, but maybe it's possible to thread that needle if both the U.S. and Singapore sides allow it. Also, to avoid all capital gains tax you can't have any cash left over. You have to buy something equal to or higher in value. If there's a mortgage on the home that's partially or fully paid off as part of the end-to-end transaction then that part is ordinarily a taxable capital gain (equivalent to excess cash proceeds). And there are restrictions/limitations on living in the home(s) before/after the swap. It's a bit complicated, but it may be possible.

Could she sell her share of this other property to her sister? Pre-U.S. personhood would be a good time to do so (if she does so) since she'd avoid capital gains tax on her share of that home. And there are advantages on the Singapore side to having a nice, clean, single owner arrangement. Or sell her share to one of her parents? Or sell her share to you? Of course that share of the home would be U.S. capital gains tax eligible under your ownership, but that might be OK if you can indefinitely defer U.S. capital gains tax through some combination of cost basis resets (probate) and/or Section 1031 exchanges.

And bear in mind the rules could change on either side of the Pacific Ocean, so it's somewhat a leap of faith no matter what you and she do.

 

[celtosaxon]

The exchange would have to be to a non-U.S. home to qualify. So yes, that’s the idea.

I'm not sure. I know the funds have to be held in escrow by a third party, and the swap has to be completed within 180 days (so no long escrow). Meaning you have to find a trustworthy escrow agent in Singapore who knows what the heck they're doing, why they're doing it, and a bit about the intersection between Singapore and U.S. tax rules. I kind of doubt the escrow requirement would allow another owner to come into the picture, even if it's a joint filing spouse, but maybe it's possible to thread that needle if both the U.S. and Singapore sides allow it. Also, to avoid all capital gains tax you can't have any cash left over. You have to buy something equal to or higher in value. If there's a mortgage on the home that's partially or fully paid off as part of the end-to-end transaction then that part is ordinarily a taxable capital gain (equivalent to excess cash proceeds). And there are restrictions/limitations on living in the home(s) before/after the swap. It's a bit complicated, but it may be possible.

Could she sell her share of this other property to her sister? Pre-U.S. personhood would be a good time to do so (if she does so) since she'd avoid capital gains tax on her share of that home. And there are advantages on the Singapore side to having a nice, clean, single owner arrangement. Or sell her share to one of her parents? Or sell her share to you? Of course that share of the home would be U.S. capital gains tax eligible under your ownership, but that might be OK if you can indefinitely defer U.S. capital gains tax through some combination of cost basis resets (probate) and/or Section 1031 exchanges.

And bear in mind the rules could change on either side of the Pacific Ocean, so it's somewhat a leap of faith no matter what you and she do.

So to summarize… it’s complicated.

On top of that she is a joint director of a local PTE LTD, has other significant cash deposits and a trust. I told her she needs to remove her name from as much of that as possible… or else we’ll need to hire a professional and face the consequences.

 

[BBCWatcher]

Fun stuff.

 

[chekseng80]

Based on a discussion in another thread some people are interested in what's going on with my long-term investment portfolio, so here are some more statistics. I took a look at the year end valuations across all accounts that contain any stock (equity) holdings, i.e. my "long-term" accounts. These accounts include "ordinary" brokerage accounts plus 401(k), 529, and ESPP accounts. I totaled up the nominal U.S. dollar values of these accounts on December 31 of each year. I did not include cash, pure bond (such as Singapore Savings Bond), real property, or CPF assets in other accounts. I also did not include a small SRS account since I was too lazy to convert that account to U.S. dollars across these years. However, I try not to hoard cash or cash equivalents and don't try to time markets, so at least the cash part shouldn't affect the numbers too much. These percentages include monthly savings inflows and dividend reinvesting. Some of these assets will be taxed upon withdrawal, please note.

Anyway, how has my (partial, long-term) nominal net worth wobbled over the past ~10 years? Here's how that looks at each year end (December 31), year over year...

2022: -16.9%
2021: +25.4%
2020: +9.4%
2019: +26.3%
2018: -5.6%
2017: +18.7%
2016: +20.9%
2015: -3.8%
2014: +9.9%
2013: +17.4%

2022 v. 2012: +142.2%

For reference, the S&P 500 stock index rose 169.2% over that same interval (2022 v. 2012), and that's not including dividend reinvesting. So obviously I wasn't doing that sort of investing (definitely not 100% S&P 500) since even with monthly savings inflow this substantial portion of my net worth didn't rise as fast as the primary U.S. stock index did. Unless I screwed up the math (possible!) the primary reasons are bonds (yes, I do have a reasonably age/risk appropriate allocation to bonds within these accounts), non-U.S. S&P 500 stocks and REITs (U.S. listed stocks are not the only stocks in the world), and some ESPP drag. (The Employee Stock Purchase Plan shares trailed the S&P 500 over this interval, although I try to keep ESPP shares to a relatively small percentage of total assets. Even so there was definitely some ESPP drag.)

Anyway, what can I/we learn from this? Well, the fun fact is that my nominal net worth much more than doubled over the past 10 years, and that's not counting other assets that grew too. I'm not complaining! A nice situation got much nicer. Second, my instant net worth can vary year to year (up and down) by double digit percentages. It just so happens 2022 wasn't a terrific year. Factoring in CPF and other assets, including spousal assets, my household's net worth certainly fell by >10% in nominal terms (more in real terms) in 2022. I think that was the biggest percentage decline ever in my net worth, and that's basically because monthly savings flow (even though I periodically increase the monthly savings flow) represents a progressively smaller share of total assets over an investing life. So it goes! This 2022 decline doesn't bother me, and hopefully it gives you some reassurance if/when you see something similar.

Any more questions?

Yr stock and bond allocation is it following yr general advice of 80-20 and glidding towards bond 5-7 yrs approaching retirement age?

Do u take into acct the whole cpf bal as bond?

I am considering my SA as bond and even with this, my MBH portion is extremely low.

 

[BBCWatcher]

Yr stock and bond allocation is it following yr general advice of 80-20 and glidding towards bond 5-7 yrs approaching retirement age?

Yes, but with a couple caveats. One caveat is that my spouse does whatever she wants to do, and she prefers direct holding of individual government bonds. I cannot fully "offset" her investment preference on a household basis and don't particularly try. Another caveat is that I've long felt and still feel that CPF is attractive, and it's "bond-like." So I'm OK with violating the "textbook" portfolio allocation if CPF is the reason.

Both of these factors mean that we're a little more "bond heavy" than I/we probably could be at our ages.

Do u take into acct the whole cpf bal as bond?

Yes, exactly. I do. Our CPF balances skew our household's overall portfolio allocation percentages a bit.

I am considering my SA as bond and even with this, my MBH portion is extremely low.

That may or may not be a problem.

 

[chillinbythebeach]

1. As I keep getting closer to retirement my portfolio will gradually skew more toward investment grade bond-like performance. As you can see I'm already trailing the U.S. S&P 500 stock index (a useful but not dispositive benchmark), and I expect to trail it somewhat more going forward. That's all by design. I've been fine tuning this trajectory a bit in favor of stocks since several years ago I realized my portfolio allocation was getting too conservative too quickly (especially on a household basis and with CPF in the mix), but this basic trajectory is still going to happen.

Hi BBCW, curious about your asset allocation from retirement till old age / death - would you be having a fixed asset allocation that you will keep to (e.g. 60/40 or 40/60)? Or would it be slowly adjusted based on age and risk tolerance?

 

[crossfitter]

Hi BBCW, Just interested to hear your thoughts.

I just inherited a sum of money. I am single and in my 40s, have no debt and own my home outright. I am pretty invested in property from before and I have passive income coming in which is sufficient for my needs for the future. How do you recommend investing now? My funds are sitting in bonds and money market funds. Do you recommend investing a lump sum in any specific area or investing in an SP 500 or global etf monthly or just staying long in cash to wait for a market downturn which doesn't seem to be happening at the moment.

Thank you.

 

[BBCWatcher]

Hi BBCW, curious about your asset allocation from retirement till old age / death - would you be having a fixed asset allocation that you will keep to (e.g. 60/40 or 40/60)? Or would it be slowly adjusted based on age and risk tolerance?

I haven't made a firm decision yet. Since I'm generally subject to U.S. capital gains tax (or could be) I'll probably avoid big allocation adjustments if I can reasonably do so. So probably a "loose" fixed allocation. Another reason I'm a little uncertain is that life annuity income looks like it'll be quite decent. That factor might argue for holding a little more aggressive posture for longer.

I just inherited a sum of money. I am single and in my 40s, have no debt and own my home outright. I am pretty invested in property from before and I have passive income coming in which is sufficient for my needs for the future. How do you recommend investing now? My funds are sitting in bonds and money market funds. Do you recommend investing a lump sum in any specific area or investing in an SP 500 or global etf monthly or just staying long in cash to wait for a market downturn which doesn't seem to be happening at the moment.

Since you don't seem to have a global stock index fund holding that'd probably make sense to add from at least part of your inheritance. It'd give you some "offshore" and asset diversification for the long term. If you want to split up your purchase of that fund into a few months or even up to a year (12 months) that seems fine to me.

Another possibility (not mutually exclusive) is simply to give away some money to a charity or cause that you care about.

 

[BBCWatcher]

The U.S. Consumer Price Index (CPI) for June, 2023, is excellent news really. Overall and core inflation rates are well in check now. The data should give the Federal Reserve confidence that it doesn't need to raise interest rates. The wage data are good, too. At long last workers are getting some real wage increases.

As always a single report should not be given too much weight, but the trends are all good.

 

[bluerail]

I am having Aviva plan 2 shield plan which as you mentioned has poorer cancer coverage compared to others. Should i purchase the cancer cover plus to supplement if i view myself as higher risk of cancer due to family history?

For my 2 kids (minor - 5yo & 8yo), should i purchase too? I reckon only to consider when they turn18?

If you can switch, there is really no reason to stay with Aviva where you will be paying the same or even higher price for much lower coverage. Will be able to save on the Cancer Cover Plus too.

 

[BBCWatcher]

You should give some thought to intergenerational financial dependencies since they can greatly influence many decisions. They also can bear significantly on ”FIRE” strategies (if that’s your thing) and how you support elders.

Different families are in different circumstances, but for what it’s worth my financial dependency on my parents ended when my final undergraduate university tuition payment was made. I was 21 years old then. Graduate school was better-than-free (full scholarship plus a small stipend for living expenses — very unusual), and I didn’t live in my parents’ house even during term breaks after age 21, so I was really off on my own. I even did some “sofa surfing” to bridge the term break between undergraduate and graduate universities, and worked full-time, so I really cut the cord.

My siblings were financially dependent for longer, much deeper into their 20s (at least), but that’s perfectly OK.

Moving out of the house at 21(*) wasn’t a financially smart decision as a separate matter. It’s more expensive to operate two separate households (my household of one plus my parental household) than a single combined household. But I could handle my separate household on my own (thanks to my stipend), and there was really no viable alternative choice if I wanted that better-than-free graduate school.

There’s no question that had I gotten into financial trouble (needed a bailout of some kind) that I would’ve asked my parents for help. That “insurance” service was valuable, and it probably affected my decisions at the margins. However, I never had to make that call as it turned out. At most I would’ve been mildly embarrassed if I made such a call, but you really shouldn’t be even that. It’s important to ask for help when you need it, not after you need it. Otherwise you might do some crazy things like take out high interest loans.

My parents prepared well for their retirement lives, so there’s no real prospect they’ll ever be financially dependent on their children or grandchildren. To a limited extent I’ve advised them on financial matters, but they’ve done fine on their own. They might need some non-financial attention, of course. I’m not expecting any inheritances.

Whatever your situation just try to make the best of it. For example, in Singapore we now have CPF LIFE. So a child or grandchild can help an elder nail down solid (and preferably escalating) lifelong income in retirement, often with tax relief for the donor. Another thing to think about is how you and your family might build truly dynastic wealth. I might have more to say on this subject, but the basic principle is you want to avoid concentrating too much wealth among the eldest generation in the ways elders like to invest (bonds, fixed deposits, and low rental yield condos basically) and instead shift wealth into higher yielding, even better diversified vehicles under the able stewardship of younger cohorts — including prudent educational investments in those cohorts. That doesn’t mean you starve grandma, but you use the right tools to preserve her real lifestyle for all the rest of her days. Said another way, more and earlier gifts, fewer and lesser bequests. Pass the wealth on and put it to better work NOW, not later. I’m trying to do that, for example via generously funded U.S. “529” accounts. And I’m now thinking about the next steps.

(*) It “felt” like I moved out at age 18 because thereafter I only spent 3 term breaks and short vacations in my parental home. But I was definitely financially dependent throughout that period since I wasn’t paying all those expenses on my own.

 

[celtosaxon]

I am also fortunate that both of my parents (and my wife’s parents) are more than prepared for retirement. I am the named executor on my parent’s will, but it should not go to probate because all accounts have beneficiaries and all properties have lady bird deeds. I also advise my parents on a limited capacity, but they do their own thing - even though it may not always make the absolute best financial sense, at least they have good sense… and that is super critical. I will likely get something from inheritance, but it won’t even be double digit % impact to my net worth, so I don’t consider it.

There are a lot of financial wild cards in my future… too many to count, but I will figure it out along the way. I wanted to have enough to retire by the time our first kid enters college next year. But if we move to California, we have to decide whether to buy a place there and whether to sell our condo here. In both cases, these are 7 figure decisions that impact our financial calculus quite substantially.

 

[ExEngineer]

BBCW et al …a consult on employee stock options:

1. I hold a certain amount of (US listed) stock options through an employer incentive program, for which the vest date is upcoming, and are in the money at current market prices. I am reasonably confident that over the mid/long term the stock will continue to appreciate steadily (not much better/worse than the S&P or global equities), so let’s assume the “ITM” status is not a temporary. The stock pays a consistent dividend. If I exercise the option and hold onto the stock, my ESOP account will automatically reinvest dividends very efficiently (zero fees, fractional shares etc..).

2. I don’t have any short term needs for liquidating this so I’d prefer to leave it “invested” in equities in one way or another.

3. It would seem the choices are:
a) Exercise the option, then sell the associated stocks and redeploy proceeds into other equities - eg accumulate more broad-based ETFs (currently the bulk of my equity exposure with the exception of a chunk of ESOP holdings).
b) Exercise the option and hold onto the individual stock
c) Hold onto the option as-is (expiry is several years away), and liquidate at a later date

What factors should I consider in deciding among these?

Im pretty clear what some of the benefits of (a) are…reduced concentration risk, lower US estate tax exposure (I am a SG tax resident and hold slightly over the estate tax threshold for non-US persons)…any others?

Setting (a) aside, I’m less clear on the pros & cons between b and c.
Except of course there is some (low but nonzero) possibility of the stock price declining significantly over time, either reducing or even zero-ung the paper value of the option…which, in absence of any other considerations, would suggest b is better than c? Am I missing something?

Thanks in advance for perspectives.

 

[BBCWatcher]

Replying to ExEngineer‘s stock options questions, there are a few things to think about.

As far as taxes you have U.S. estate tax, U.S. dividend withholding tax (I assume the broker does that for you before reinvesting net dividends), and Singapore income tax. I believe you trigger income tax in Singapore when you exercise the options. If you expect to be in a lower Singapore income tax bracket in the future then deferral might make sense. On the other hand you presumably expect/hope the stock price will generally go up with time, and the bigger the value of the stock option the more income tax you’ll pay. Also, presumably you miss out on the 70% of dividends you get to keep if you don’t exercise your options as soon as allowed. And there’s a risk the options will fall out of the money if you wait. So unless the future Singapore tax savings are significant and predictable you probably ought to exercise in the money options as soon as allowed.

There’s a common ”rule of thumb” to avoid holding a single stock that represents over 4% of net worth. But it’s only that, a rule of thumb. I like this rule and try to follow it, but I’m not maniacal about it.

There’s also a school of thought that you should only keep holding shares (after exercising options) if you would’ve used cash to buy the same or similar position. Absent a compelling enough reason to hold the position, such as capital gains tax that you want to defer. (Not applicable for you.)

Congratulations on being in the money. That doesn’t always happen with options.