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Utilizing your Capital Losses now
Capital losses are only deductible up to $3,000 per year. On some investments, the losses are large enough that it may take many years to get full benefit of a loss.
Therefore, you may want to do some capital gains planning to take the benefits now rather than later.
Therefore, if you have substantial losses, consider selling securities at a gain and then immediately repurchasing them, since the 30-day rule does not apply to gains. That way, your gain will be tax-free, your original investment is restored and you have a higher cost basis for your new investment (i.e., any future gain will be lower).
If you have net gains, try to avoid short-term gains which are usually taxed at a much higher tax rate (up to 35%) than long-term gains (15%). You might consider, where feasible, trying to reduce all capital gains and generate short-term capital losses up to $3,000.
The maximum long term capital gains tax rate is currently 15%. This is set to rise to 20% in 2011. This potential change in rate in something to think about in your long term investment planning.
Do not use this article as a substitute for professional advice. The information in this article is intended to be only a general overview of the topic and may omit details that could be critical to your specific situation. Accordingly, this article should not be construed as rendering legal, tax, or other professional services. Please contact our office for more information on this topic and how it could affect your specific tax or financial situation.