This year's plunging markets have left most investors feeling poorer. If your 401k looks like a 201k, you're not alone! But many long-term investors still have assets worth more than what they paid for them. If you're among this lucky group, and you're in the 10% or 15% tax bracket, the Tax Code gives you a special break.
Specifically, tax on most long-term capital gains from property held more than 12 months is cut to zero percent. That's right...tax-free capital gains! (For 2008, this bracket includes single filers with taxable incomes up to $32,550, and joint filers up to $65,100.) As the year moves to a close, you should have a pretty good idea what your income will be. If you expect your taxable income (after all deductions and personal exemptions) to be below the limit, you might want to consider selling some of your appreciated assets to pocket tax-free income.
Even if you have profitable investments you'd like to keep, you might consider selling them now and immediately repurchasing them. Why would you do such a thing? This will raise your "basis" from the price you originally paid to the new price - and save you tax when you sell down the road. (The special zero percent rate is scheduled to expire after 2010, and President-elect Obama has proposed to raise the top rate on capital gains to 20%. So selling now can still benefit you even if you plan to keep the investment. Of course, you'd want to consider transaction costs before taking advantage of this strategy.)
Today's challenging market makes it even more important to invest with an eye on taxes.
Specifically, tax on most long-term capital gains from property held more than 12 months is cut to zero percent. That's right...tax-free capital gains! (For 2008, this bracket includes single filers with taxable incomes up to $32,550, and joint filers up to $65,100.) As the year moves to a close, you should have a pretty good idea what your income will be. If you expect your taxable income (after all deductions and personal exemptions) to be below the limit, you might want to consider selling some of your appreciated assets to pocket tax-free income.
Even if you have profitable investments you'd like to keep, you might consider selling them now and immediately repurchasing them. Why would you do such a thing? This will raise your "basis" from the price you originally paid to the new price - and save you tax when you sell down the road. (The special zero percent rate is scheduled to expire after 2010, and President-elect Obama has proposed to raise the top rate on capital gains to 20%. So selling now can still benefit you even if you plan to keep the investment. Of course, you'd want to consider transaction costs before taking advantage of this strategy.)
Today's challenging market makes it even more important to invest with an eye on taxes.
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