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Investment Gains And Losses

Minimize taxes on investments by judicious matching of gains and losses. Where appropriate, try to avoid short-term gains, which are usually taxed at a much higher tax rate (up to 35% in 2016, but scheduled to rise to 39.6% in 2017) than long-term gains.

If your tax bracket is either 10% or 15% (married couples making less than $70,700 or single filers making less than $35,350), then now is the time to take advantage of the zero percent tax rate on qualified dividends and long-term capital gains. Even if you fall into a higher tax bracket, the maximum tax rate on long-term capital gains in 2016 is only 15%.

Consider where feasible to reduce all capital gains and generate short-term capital losses up to $3,000 as well.

  • Tip: As a general rule, if you have a large capital gain this year, consider selling an investment on which you have an accumulated loss. Capital losses up to the amount of your capital gains plus $3,000 per year ($1,500 if married filing separately) can be claimed as a deduction against income.
  • Tip: After selling securities investment to generate a capital loss, you can repurchase it after 30 days. If you buy it back within 30 days, the loss will be disallowed. Or you can immediately repurchase a similar (but not the same) investment, e.g., another mutual fund with the same objectives as the one you sold.
  • Tip: If you have losses, you might 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).

Note: Starting in 2016, a 3.8 percent Medicare tax will be applied to investment income such as long-term capital gains. This information is something to think about as you plan your long term investments.

Please call us if you need assistance with any of your long term tax planning goals.