2009 Year End Tax Tips- Capital Gains and Losses

Capital Gains and Losses

For tax purposes, capital gains and losses are used to offset each other.  However, any excess capital loss can also offset up to $3,000 of high-taxed ordinary income in 2009.  The remainder is carried over to next year.  If a gain qualifies as long-term capital gain (i.e., you have owned the asset for more than a year), the maximum tax rate on the gain is normally 15% (5% for low-income taxpayers).

Year-end strategy: When it makes economic sense, “time” capital gains and losses.  For example, if you have already realized capital gains in 2009, you might realize capital losses at year-end to absorb those gains.  Similarly, if you have realized capital losses in 2009, gains realized at year-end can offset those losses.  For taxpayers in the regular 10% or 15% tax brackets, the maximum tax rate for long-term capital gains of 5% is reduced to 0%.  Even taxpayers in higher tax brackets may benefit from the 0% rate on a portion of their long-term capital gain.

Tip:  Depending on your situation, you might have children in low tax brackets sell securities to realize long-term capital gain in 2009.  This tax break is scheduled to expire after 2010.

Let me know if you will be using this strategy this year.

Tags: Capital gain, Capital loss, Income, Tax, Tax Preparation