3 Reasons to Recognize Capital Gains in 2012

1) The Long-Term Capital Gains Rate is Going Up

Long-term capital gains are for capital assets held longer than a year. Capital assets include stocks, bonds and mutual funds. Collectibles and certain Real Estate are subject to special rules.  The stated rate on long-term capital gains is currently 15%.  If Congress fails to take any action, this will increase to 20%.  The so-called Bush tax cuts reduced the rate on long-term capital gains to 15%.  These tax cuts are set to expire at the end of 2012.

2) The Short-Term Capital Gains Rate is Going Up

Short-term capital gains are for capital assets held a year or less.  These are taxed at ordinary income tax rates.  The highest ordinary income tax rate is currently 35%.  If Congress doesn’t take any action, this is scheduled to increase to 39.6% in 2013.

 

3) The New Unearned Income Medicare Contribution Tax Will Apply to Capital Gains

Beginning in 2013 The Unearned Income Medicare Tax will apply to passive income.  Passive income includes:

  •  Interest

  •  Dividends

  • Capital Gains

  • Annuities

  • Rents

  • Royalties

  • Passive Income from Flow Through entities such as Subchapter S Corporations

This tax will affect married taxpayers filing taxpayers with Modified Adjusted Gross Income of $250,000 and single filers of over $200,000.

ACTION ITEM: Investors need to understand capital gains taxes and rates.  As always however, don’t let the tax tail wag the dog.

Thomas F. Scanlon, CPA, CFP®

About the author:

Tom Scanlon, CPA, CFP®

Tom Scanlon has over twenty-five years experience in public accounting with an extensive background in the areas of financial, tax and estate planning. Find Tom on Google+

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