Year-end ’08 personal tax strategy: Offset capital gains and losses — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

Year-end ’08 personal tax strategy: Offset capital gains and losses

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The basic tax rule is that gains and losses from sales of securities and other capital losses cancel out each other. In addition, you can use any excess loss to shelter up to $3,000 of ordinary income (from salary, interest, etc.) from taxes.

Strategy: If you’re showing a net capital loss for the year, realize a capital gain. The capital gain is effectively tax-free up to the amount of the loss. Similarly, you can realize a loss to absorb capital gain from earlier in the year.

The maximum tax rate on long-term capital gain is 15% for investors in a 25% or higher tax bracket. It is 0% for taxpayers in the regular 10% and 15% tax brackets. To qualify for long-term capital gain treatment, you must hold the asset for more than one year before selling.

Tip: Don’t buy and sell securities or other assets only for tax reasons. Consider all the relevant economic factors in this uncertain environment. 

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