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Keep capital gains in check

By Jennie L. Phipps ·
Wednesday, August 22, 2012
Posted: 4 pm ET

In 2012, the maximum tax rate on long-term capital gains is 15 percent, and it is zero for those in the 10 or 15 percent tax brackets.

If the Bush tax cuts expire -- as it looks like they might -- the rate for people in the 25 percent and higher tax brackets will rise to 20 percent on Jan. 1, 2013. For people in the 10 or 15 percent brackets, capital gains tax will go to 10 percent.

Eric Meermann, a CFP with Palisades Hudson Financial Group in Scarsdale, N.Y., offers this advice to everyone, but especially those focused on retirement planning:

Sometimes it pays to do nothing. Rushing to sell for no reason is a lousy idea. "You’ll probably come out ahead by holding that investment, even if you have to pay a higher tax rate on the gain 20 years from now.” Meermann says.

Sell in 2012 if you have a good reason. If you’re in the zero capital gains bracket now, selling some securities this year might be a winning strategy. “But first, do the math to see if the gain from the sale would push you into a higher bracket, which would negate the savings,” Meermann says.

Look at the whole picture. If you have securities that are selling for less than you paid for them, you can sell them and take the losses against any gains from other investments. If your losses exceed your gains, you’re limited to a net loss of $3,000 to offset against your income, but you can carry the excess losses forward and use them to offset losses in future years.

Is a home sale in your immediate future? If you plan to sell a high-value home in which you have lots of equity, selling in 2012 may save you money. Single homeowners will continue to be eligible for a $250,000 tax exclusion ($500,000 for couples filing jointly) on the sale of a home they have lived in for two of the previous five years. Any profit over that, minus your cost basis, is treated as a long-term capital gain as long as you have owned the property for more than a year. If this year you and your spouse sell a $1 million property for which you paid $250,000, you'll save as much as $12,500 in taxes than if you wait until next year. That's a nice retirement bonus.

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