Starting January 1, 2001 , Congress is providing investors a new tax bonus. Capital gains normally taxed at 20%, will be taxed at only 18% for assets purchased after December 31, 2000 , and held for 5 years. For taxpayers normally in the lowest federal tax bracket, the rate will be even lower—only 8% capital gains tax. (The lower rates apply to common investments such as securities and real estate and do not apply to sale of collectibles, un-recaptured Sec. 1250 gain and part of the gain on "qualified small business stock.")
Here’s an idea. Let’s say you own a stock or real estate that you are holding for the long run. If that property has not yet appreciated (or appreciated little) and you believe will appreciate substantially between 2001 and 2006, you might consider a “deemed” sale and repurchase in January 2001. You would pay tax on the gain up to the sale date and start a new holding period by repurchasing the same asset (you do not really need to make a sale and repurchase but can report such on your tax return—please consult your tax return advisor). This works best if you have losses to offset the gain you would report in 2001.
Many investors often miss tax opportunities thinking their tax preparer will notify them. However, your tax preparer often sees on your tax return what has occurred in the past. The above advice is about smart planning for the future. Your tax person can’t read your mind about future transactions, nor may he know enough about your overall financial situation. Consequently, you may never hear valuable tax planning advice.
If you like the idea of a tax review and advice for saving money in the future, we can provide some valuable ideas. Just check off on the coupon or call the office.