the capital gains rules could mean lower taxes when you sell an
Holding period determines the tax rate
taxpayers in tax brackets above 15%, the maximum tax rate is 15% on gains
from capital assets, such as stocks and bonds, that are held more than 12
months. Taxpayers in the 10% or 15% brackets pay 0% on these
gains. These rates also apply to real estate gains, except that recaptured
depreciation is generally taxed at 25%. The maximum rate for collectibles,
such as coins and antiques, held over one year is 28%.
Planning can increase return
the savvy investor do to maximize after-tax returns? That depends, since
many factors other than taxes affect investment decisions. However,
careful planning can make a significant difference in your investment
If your employer offers stock
options, be sure to manage their exercise and sale to maximize your
long-term capital gains.
You pay ordinary tax rates on
taxable distributions from your retirement accounts, regardless of how
much capital gains income they contain. Therefore, you may want to
evaluate the assets in these accounts in relation to your nonretirement
investments. For example, the closer you are to retirement, or the higher
you expect your retirement tax rate to be, the more you may benefit from
keeping assets with long-term gain potential out of your retirement
Be careful with capital losses.
The timing and size of your capital gains and losses could affect whether
you achieve maximum tax benefit from your losses.
Be aware that the exercise of
substantial incentive stock options can trigger the alternative minimum
tax, with all its related complications.
With the big gap between
long-term capital gain and ordinary tax rates, good recordkeeping is very
important to ensure capital gains treatment. Also, when determining if
you've met the required long-term holding period, remember that your
holding period starts the day after you purchase an asset and includes the