Capital Gain Considerations as Year-End Draws Near

The pending expiration of the “Bush tax cuts” should make most folks give thoughtful consideration to their capital gain tax planning, as the year comes to a conclusion.

This year, long-term capital gains are taxed at a maximum of 15%, though that rate will move upward in 2013 absent Congressional action. Not to mention the imposition of the new 3.8% “unearned income Medicare contribution tax” which will also apply in 2013 to realized capital gains (as well as other forms of income). Say you own some appreciated stock which you think may continue to grow even more in value. Consider selling in 2012, pay the favorable 15% tax rate, and then buy the stock back, which will therefore also increase your tax basis in the repurchased stock.

Likewise, if you are planning on selling your primary residence, and are among the fortunate few whose residence has appreciated in value to the extent that your long term capital gain upon sale may exceed the $500,000 joint filer exclusion, try to close before year end in order to secure that favorable 15% tax rate and avoid the 3.8% Medicare surtax which would also apply to a transaction of this nature.