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Working Paper
Levering Up to Do Good: Direct Long-Short Investing and Charitable Giving
April 23, 2024
We use historical strategy simulations to evaluate the advantages of donating appreciated stock in the context of tax-aware long-short factor strategies. We find long-short strategies exhibit several advantages over long-only investments.
Tax Matters
AQR Factor Research Papers Win Prestigious Academic Awards
March 12, 2024
Factor investing (combined with tax-aware implementation) can offer investors substantial rewards in the form of both pre-tax returns and tax benefits. Two papers by our colleagues recently won highly prestigious awards from top academic and practitioner journals for their research on factor investing, demonstrating our commitment to top-notch factor research.
Tax Matters
Making VPFs Work Harder for You
March 1, 2024
There is a range of solutions aimed at reducing the risk of concentrated stock tax-efficiently: completion portfolios, exchange funds, charitable giving, just to name a few. But for some investors, Variable Prepaid Forwards (VPFs ) are a favorite. It’s not hard to see why.
Tax Matters
The Enduring Appeal of Gain Deferral, Part 1
February 1, 2024
We find that strategies that help defer gains can be highly beneficial, irrespective of the investment horizon and especially over the long term.
Journal Article
Taxes, Charity, and Hedge Funds: Tax Implications of Charitable Contributions of Leveraged Partnership Interests
January 10, 2022
As a result of recent Treasury regulations, investors in investment partnerships, such as hedge funds, might end up recognizing capital gains when they contribute their partnership interests to a charity. We explain how such taxable gains upon charitable contributions arise and quantify how punitive they might be.
Tax Matters
Does Tax Efficiency Just Delay the Tax Burden?
July 28, 2021
We often hear the sentiment that tax-efficient investing just delays the inevitable: Eventually, a day will come when the tax-efficient investor will have to true up on years of deferred taxes. And, with the proposed Biden Tax Plan sending many investors scrambling to plan for higher taxes, we feel that now is as good a time as any to put this long-standing myth to bed.
Journal Article
The Tax Benefits of Direct Indexing: Not a One-Size-Fits-All Formula
May 7, 2021
An investor holding a direct indexing portfolio can obtain tax benefits by harvesting losses on individual stock positions. We show that investors with allocations to hedge funds and derivatives are the most likely category of investors to have systematic short-term capital gains in their portfolios and, therefore, benefit the most from losses harvested by direct-indexing strategies. We show how tax benefits are affected by equalizing the tax rate applicable to long-term and short-term capital gains.
Journal Article
Limitation on Trader Fund Losses under the CARES Act of 2020
March 3, 2021
We explain how hedge fund investors might be affected by a limitation on excess business losses codified in recent tax legislation. In order to allocate business losses a hedge fund now must be a trader fund. After explaining the relationship between hedge fund losses and business losses, we illustrate with simple examples how the new provisions may affect hedge fund investors.
Journal Article
Integration of Income and Estate Tax Planning
September 1, 2020
Preservation and transfer of wealth to future generations is one of the central financial goals for most high-net-worth families. We show that a family that invests with income and estate tax efficiency in mind can achieve substantially higher wealth levels than a family oblivious to taxes.
Journal Article
Tax-Efficient Portfolio Transition: A Tax-Aware Relaxed-Constraint Approach to Switching Equity Managers
March 2, 2020
For a taxable investor with a highly appreciated equity portfolio, replacing the portfolio manager is likely to trigger substantial tax liabilities. We find that a tax-aware relaxed-constraint post-transition strategy significantly outperforms a traditional tax-agnostic long-only strategy in its ability to preserve and grow the investors after-tax wealth over the long term.