The San Francisco Chronicle’s Kathleen Pender offers up advice for financial planning in the new year. Kathleen quotes Dave on the value of harvesting capital gains ahead of a scheduled rise from 15% to as much as 23.8%.
Consider harvesting capital gains. With tax rates set to go up in 2013, many advisers say investors should consider selling stocks, funds and other investments in which they have a gain in 2012 to lock in the tax at this year’s lower rates. If they still want to own the investment, they can immediately buy it back.
This is the opposite of a more common strategy known as tax-loss harvesting, which involves selling assets in which you have lost money to lock in a tax loss. The loss can be used to offset gains in other investments sold the same year. If your realized losses for the year exceed your realized gains, you can use up to $3,000 in excess losses to reduce your ordinary income and carry any remaining losses forward to offset taxes in future years. One hitch with this strategy is that if you sell an asset at a loss and buy it back within 30 days, you cannot claim the tax loss. This wash sale rule does not apply to capital gains.
“I can sell something for a gain and instantaneously go back into it” without impacting the tax treatment, says Dave Yeske, managing director with investment firm Yeske Buie in San Francisco.
But there’s no reason to do it early in the year versus later. “We will wait until it’s pretty unambiguously clear which way (the tax rate) is going to go,” Yeske says.