A simple but often overlooked tax planning idea is to recognize capital gains when tax rates are at their lowest. The capital gains tax rate is scheduled to rise from 15 percent in 2010 to 20 percent in 2011 and 23.8 percent in 2013 for people in most tax brackets. Long term capital gains, which were tax free for those in the 15 percent tax bracket, will be taxed at 10 percent in 2011.

Capital Assets

A long term capital gain is a gain on property held for more than one year. A short term gain on property held for less than one year is taxed at your regular tax rate.

Property includes anything you own, whether for personal use or investment purposes. Your gain on the sale of a capital asset is determined by subtracting your cost (or basis) from the amount you sold it for. You may deduct a capital loss on the sale of an investment but you cannot deduct a capital loss on the sale of personal property.

Planning Ideas

With the long term capital gains tax rate scheduled to rise, you may choose to recognize capital gains in 2010 on the sale of:

• Long term securities.
• A concentrated equity position.
• A business or real estate investment.

If you are charitably inclined, you may be able to potentially offset any increase in your income due to the capital gains on a sale in 2010.

Related posts:

1. Financial Planning Week 2010