Posted in: Compliance/Legislation
Here’s one investment decision clients should wait another three weeks or so before making:
Selling an investment at a loss.
If a client wants to sell at a loss, consider advising them to wait and see what the lame-duck Congress does this December.
Reason: The current capital gains tax rate is 15%. But that rate will rise to 20% come Jan. 1 unless Congress acts. Since the loss would be greater under a higher rate, the client benefits by waiting for it to rise and then selling in 2011.
President Obama and the lame-duck Democratic Congress favor the 20% rate. There’s no telling yet whether Congress will renew the 15% rate or let it expire. After all, here it is the beginning of December and nobody even knows what their tax rate for 2011 will be!
Easing the blow of selling at a loss
Of course, selling at a loss doesn’t have to be a total loss.
Let clients know they can offset up to $3,000 for the year following the sale on their income taxes.
Reducing total income for the year by $3K lowers the client’s tax burden, possibly enough to knock them down into a lower tax bracket.
And clients can “carry forward” (in other words take a tax deduction) for the remainder of a loss.
Caveat: You can’t do this with an individual retirement account or a 401(k) plan, which are tax-sheltered.
Are your clients holding off until the capital gains tax rate is set? Let us know below.