One trick financial experts recommend for building long-term wealth is investing any “extra” or “found” money, like a tax refund. As your tax refund isn’t part of your daily or monthly budget, socking it away for your retirement shouldn’t create any financial burden on your part, and it can also prevent you from simply spending it.
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Over the long run, it can also really make a difference in your retirement lifestyle. In fact, depending on what you invest in, you may see a significant return even over the course of a single year.
Here’s a look at how much you would have now if you invested your tax refund in Amazon stock in 2023, along with an analysis of whether or not the stock would be a good place for your tax refund in 2024.
How Has Amazon Stock Performed Over the Past Year?
Amazon stock has been a certified winner over the past year, rocketing to an 90% gain. If you invested the average 2023 tax refund of $3,167 into Amazon over that time frame, you’d have about $6,017, a gain of $2,850.
That would have been a worthwhile investment indeed. But it’s also important to note that Amazon fluctuates in value quite a bit. Over the past five years, for example, Amazon has a total return of just 110%. This means that a large part of its gain over the past five years came just in the last year.
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What Are Analyst Projections for Amazon?
Going forward, analysts are bullish on Amazon’s prospects, with a consensus “strong buy” rating among 47 analysts surveyed. The average price target over the next 12 months is $208.48, suggesting a potential gain of around 19%. This is still double the long-term average of the overall stock market and would make AMZN a great investment if the projections were to pan out.
How Are IRS Refunds Sizing Up Compared With 2023?
According to the IRS, the average tax refund as of March 1, 2024, was $3,128. If you were to get that average refund and invest it into Amazon stock this year, you’d end up with about $3,722 in 12 months — if analyst projections are correct.
Other Options for Investing Your Tax Refund
Amazon stock has certainly been a great place to be over the past year and, according to the analysts, that’s likely to continue.
But that doesn’t mean you have to throw your whole refund into a single stock every year. For starters, it will leave you undiversified. If Amazon has a bad year and drops 50%, that could devastate your long-term savings plan.
Plus, to invest in a single stock, you really should put in the time to research and analyze it yourself and not base your financial future on a consensus recommendation.
One option if you want to diversify and/or don’t want to do all of that legwork yourself is to simply buy a low-cost index fund, like an S&P 500 index fund. This will give you affordable access to an investment that has returned about 10% annually over the long run, doubling your money roughly every seven years.
No less than Warren Buffett, the “Oracle of Omaha” himself, told CNBC in 2017 that for the average investor, consistently buying an S&P 500 index fund is “the thing that makes the most sense practically all of the time.”
He added that investors should “keep buying it through thick and thin, and especially through thin.” So, if you’re looking for an alternative to simply buying one stock, like Amazon, that could be a solid option.
Should You Invest Your 2024 Tax Refund in Amazon Stock?
Although Amazon had a banner year in 2023 and analyst projections are strong, there’s no way to accurately predict how its shares will perform over the next year. However, as a general strategy, investing your tax refund is a solid choice.
Whether you should pick Amazon as a specific investment will depend on a number of variables, from your investment objectives and risk tolerance to the nature of your overall portfolio. For example, Amazon might be a great addition if you’ve already got a number of different stocks and need to diversify into technology, but it becomes riskier if it’s the only investment that you own.
If you’re not willing or able to put in the time and research to determine whether Amazon is a good option, consider following the advice of Buffett and dumping your tax refund into a low-cost index fund. Just remember consistency and patience are the key to long-term gains.
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This article originally appeared on GOBankingRates.com: How Much You’d Have Now If You Invested Your Tax Refund in Amazon Stock in 2023
Interestingly, if he makes this election in the future, he can elect to treat the condo as his principal residence for up to four years before he moved into it, which may wipe out all but one year of taxation divided by the total years you all own the property.
Does an owner pay capital gains tax for moving into a rental property?
It depends on the steps taken. Liljana, I think your son can make a 45(3) election in the future. Although you and your husband could as well, it may lead to more tax later on your home. You might need to pay some capital gains tax now on the condo’s change in use to personal use. You might also need to pay more tax later on the subsequent appreciation as well from the time your son moved into it to the time you transfer it to him or sell it, or upon the second death of you and your husband. This appreciation will also be taxable, assuming you want to preserve your principal residence exemption for your house.
You can claim a property that your child lives in as your principal residence if it is legally or beneficially yours. But this has tax implications for your own home.
Ask MoneySense
I bought a condo in 2006 in another province for my daughter to live in. It’s registered in my name. I also have a house in another province. I am planning to sell the condo my daughter lives in very soon. Can I claim capital gain exemption in the condo she lived in all these years?
—Bill
Capital gains tax when selling a home your child lives in
Canadian taxpayers may be eligible to claim the principal residence exemption when they sell real estate. Since 2016, real estate transactions have been under more scrutiny with the Canada Revenue Agency (CRA) since taxpayers now need to report all sales on their tax returns, even if the sale is of a tax-free principal residence.
The definition of principal residence for tax purposes
According to the CRA, in order for a property to qualify as a principal residence, it must be:
- A housing unit, which can include a house, a condo, a cottage, a mobile home, a trailer, a houseboat, a leasehold interest in a housing unit, or a share of the capital stock of a co-operative housing corporation;
- Owned by the taxpayer, jointly or otherwise, legally or beneficially;
- Ordinarily inhabited in the year by the taxpayer, their spouse or common-law partner, their former spouse or former common-law partner, or child.
There can be nuances in the principal residence guidelines that may impact your ability to qualify for the exemption. Some examples are if your home was rented out or used for business purposes, if the acreage is significant, or if you owned another property during the same years that you owned the property in question and claimed the principal residence exemption for it.
Legal versus beneficial ownership of a property
An important nuance for you, Bill, is whether your daughter beneficially owned the property. If she did—meaning you were on title, but it was technically hers—she may be able to claim the principal residence exemption herself. This could be the case if she paid all of the ongoing expenses, amongst other criteria. But then the question may be where did the down payment come from, and if the property was in fact beneficially your daughter’s, but legally in your name, why did the two of you not put it in her name in the first place?