Key changes in the tax codeTax incentives and incremental alpha

The 2017 tax law buoyed stock prices – but many changes are still opaque for investors. To help understand the new landscape, we profile what changed and what stayed the same.

The views expressed are those of the authors at the time of writing. Individual teams may hold different views. The value of your investment may become worth more or less than at the time of original investment.

In today’s environment of rate volatility and lower expected returns, tax management may offer attractive alpha potential. The 2017 tax law had key implications for family office and high-net-worth investors. To help understand the new landscape, we profile what changed and what stayed the same.

What tax incentives changed?

pricetag

Management fees

Fees for funds seeking long-term capital appreciation are no longer deductible.

arrows

Swap expenses

Hedging costs are higher in low-turnover portfolios as most swap expenses are nondeductible.
saw

Opportunity zones

​New tax incentives are available for long-lived ESG private-equity investments.

government building

Tax-exempt income

​Lower tax rates reduce the benefit of tax-exempt income on state/muni bonds.
house

Reit and MLP taxes

​REIT and MLP investments are incentivized by a 20% reduction in operating income tax.1

What tax incentives stayed the same?

23.8%

Holding periods over one year

Long-term gains offer a 23.8% tax rate versus a 40.8% rate for short-term gains.

calendar

Qualified dividends

Dividends from shares held for at least 60 days around a dividend date are taxed at 23.8%.

hourglass

The impact of time

Short-term losses can offset short-term gains. When timing asset sales, taxes can make a difference.

The 2017 tax law buoyed stock prices—but many changes are still opaque for investors. Contact us to continue the conversation.

Learn more:
www.wellington.com/en/family-offices
Tax investing audiocast

1REITs are real estate investment trusts. MLPs are master limited partnerships.

The tax information contained herein is not intended to be tax advice and is for discussion purposes only. Wellington Management does not provide tax advice or tax-planning services, and makes no recommendation as to the suitability of its portfolios’ investment approach for any client’s individual tax circumstances. We advise our clients to consult with their own counsel, accountants, and other advisers as to the legal, tax and economic consequences of investing in any of our investment approaches or portfolios, including as to the suitability of an approach or portfolio for their particular tax-planning needs and goals. This material cannot be relied upon for the reduction or avoidance of US, state, local or any other tax penalties.

Please see the important disclosure page for more information.

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