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I'm not sure how
to treat this as I thought that by reinvesting my son's monies into stocks
under his name was suppose to wash this.

Hi, Waiola. I'm aware of no law that allows us to sell one (profitable) investment in order to re-invest in another, without paying taxes on that sale. (Assuming this is a taxable portfolio and not a ROTH or other IRA).

Just guessing here, but maybe your advisor was trying to reduce the tax liability that is inherent in holding mutual funds. Even under-performing mutual funds distribute capital gains on which you must pay taxes every year. By re-allocating half of that investment into individual stocks, your son would not have to pay cap gains taxes on those investments unless and until he sold them. Of course,he would still be taxed on dividends that might be paid on some of those stocks, such as Disney.

So even though your son has to pay taxes on the profits from the fund sale this year, this move was apparently aimed at reducing tax liability going forward.

Perhaps a tax expert can chime in and explain this better than I can, but this is my understanding of your situation.

Jeanie (not a tax expert)
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