Understanding Capital Gains and Losses
There is a definite financial incentive in the tax code to sell a
capital asset, such as a stock, after you've owned it more than one
year. This is because profits from capital assets held one year or
less are taxed just like wages, interest, dividends, and net profits
from your business. These top income tax rates still exceed 39
percent.
By comparison, most types of capital assets held more than one year
are taxed at a maximum rate of 20 percent. For investors in the 15
percent tax bracket, the rate is 10 percent, or 8 percent for assets
held more than five years.
Do make sure you understand these rules as you make decisions on
whether to sell now or wait until 2002 or later. However, tax
considerations should almost never be the principal reason you buy or
sell capital assets.
First you should analyze the realistic potential for future value
appreciation before you decide to wait for the lower capital gains
rate. Then figure in the tax consequences of your decision. If you
must have the money right now, holding period is obviously of
secondary importance.
A capital asset is practically anything you own and use for personal
or investment purposes. Your house and its furnishings are capital
assets. So are stocks and bonds and coins and artwork and
automobiles and vacant land and the worthless loans (personal bad
debts) we talked about last week.
The difference between the sales price and the purchase price of a
capital asset is either a capital gain or a capital loss. The tax
world is full of rules on how such gains or losses (plus or minus
other mysterious adjustments) are taxed.
You're going to learn how different types of capital assets are taxed
and why following some simple procedures can save you money. Next
week we'll talk about selling your house.
As always, PLEASE make sure you read and understand the fine print.
It wouldn't be taxes in America otherwise!
You can find help at my website:
http://all-about-taxes.comOr just send me an email.
mailto:
Charlie@...PLEASE subscribe to my ezine at
http://groups.yahoo.com/group/all-about-life**********************************************************************
**********
