This week's Booyah Breakdown will address a plethora of your burning questions. We're hitting on that onerous wash-sale rule, private equity and M&A stocks. So enjoy the smorgasbord! And if anything else perplexes you, send in a question and we'll take it on. Cramer talks about selling off a portion of a stock at a loss and keeping the other portion to buy back the same stock later. How does the 30-day rule play into this or any other sale of a stock at a loss? -- A.U. The 30-day rule, a.k.a. the "wash-sale rule," can make or break your tax situation on the trade. Now remember, Cramer doesn't really think you should worry about taxes when trading, but you should still try to keep the wash-sale rule in the back of your mind. Basically, the wash-sale rule says that if you sell a security at a loss, you can't deduct that loss on your tax return if you turned around and bought a "substantially identical" security 30 days before or after the sale. And shares of the same stock in the same company are considered substantially identical, according to the IRS (preferred stock is not considered substantially identical to common stock, though). Why? Because if you buy a stock, sell it at a loss and then buy it back, on paper you're in the exact position you started. You're still holding the same stock that you started out with. But by selling those shares, you generated a juicy tax loss for yourself. And the government doesn't think you should be able to deduct that loss on your tax return if you haven't really altered your position.
So let's say you sell your shares at a $1,000 loss, but you like the stock and really want it back in your portfolio. Just wait 30 days to buy the shares back if you want to take the loss. And then on day 31, you're in the clear, taxwise, and can buy away! At that point you can have both the stock and the tax loss. Be sure to go back and read
our recent story for more grist. Jim talks about companies going public and how good that is for the likes of Goldman Sachs (GS). What about the talk I've been hearing of some large companies wanting to go private? How will that affect Goldman? Are they in on deals like that? -- D.M. They sure are -- and on many levels To start, companies hire Goldman to find investors who would want to take them private. Or Goldman could represent the private investors and help them search out companies to buy. So there are loads of fees there. In addition, Goldman has actually bought several private businesses in the past year. Most recently, they've been a part of the Biomet ( BMET), Kinder Morgan ( KMI) and Aramark ( RMK) leveraged buyouts. And Goldman's latest challenge may be Gap ( GPS). According to media reports, the struggling retail company just hired Goldman to explore "alternatives," which many assume to mean they are looking for a buyer. Goldman is definitely getting a piece of the private equity action. And don't forget, the goal for most of these companies that go private is to come back to the public again. So Goldman could again benefit on that side as well by helping these companies structure their initial public offerings and get them back on the exchanges. It seems that Goldman could be in a win-win situation. (Why don't I own Goldman, again?) What happens to a company's stock if it merges with, or is acquired by, another company? Let's say A is bought by or merged with B. What happens to stock of A? Does it still trade? If a company is bought out by another company, the stock of the company being purchased usually disappears into history. So when Motorola ( MOT) bought Symbol Technologies last year, Symbol's shares went to the stock graveyard. The combined company now trades under MOT. On the merger front, generally the larger company's stock stays, and the little guy's disappears. So when Symantec ( SYMC) and Veritas merged back in 2005 (one of the largest mergers in the software industry to date), Veritas' stock went away, and the combined company trades under SYMC. Now, what happens on your end depends on the deal. Let's say you own Company A and it was bought out for cash. You'd get the cash value of your shares and be free. If you happen to be holding the actual stock certificates of Company A, feel free to give them to your kids so they can doodle on them with crayons. If the company is purchased in a stock deal, your Company A shares will be replaced with Company B's shares. The number of shares you get will be determined by some formula outlined in the deal. And again, send those Company A stock certificates to the kids for recycling. Of course some deals involve both stock and cash, and in that case you'll get a combination of both, depending on the terms. So if you hold stock in a company that has announced it is being acquired or is merging with another, do some legwork. Read the press release and check out the company's Web site. The investor relations section should have all the details with constant updates on the deal. Come see Tracy Byrnes and RealMoney.com contributors Cody Willard and Richard Suttmeier speak at the Society for the Investigation of Recurring Events' annual meeting on Jan. 16 to discuss 2007 investment strategies. The meeting will be held at New York City's Princeton Club, 15 W. 43rd St., at 6 p.m.