At tax return time, you must “net” your capital gains and losses for the year. Any net long-term gain is taxed at a maximum 15% rate. Any excess loss can offset up to $3,000 of ordinary income.
Strategy: Sell securities at year-end with an eye on taxes. For instance, if you’re currently showing a capital net loss, you might realize short-term gains. The gains are effectively tax-free up to the amount of your capital net loss.
Conversely, if you’re currently showing a net capital gain, you may want to realize losses before year-end. The losses can wipe out the tax on the gains.
For taxpayers in the regular 10% or 15% tax brackets, the maximum federal tax rate for long-term capital gain in 2009 is 0%. Even if you’re in a higher tax bracket, a portion of your gain may qualify for this tax break (see box below).