Article on captial gains taxes on investments

1. Cutting losses to lower taxes
As you manage your investment portfolio in today’s market, it is important to take
into account any tax impacts of your investment decisions, especially at the end of the
year. Changes you make today could have an impact on your 2008 tax return. Every time
you sell a capital asset including: stocks, bonds, mutual funds, investment real estate,
even collectibles, there is likely a tax impact.
Making use of losses
The current investment and economic environment has created an increased
likelihood that you may take a loss on the sale of an asset. You need to assess how gains
and losses match up in your portfolio, and consult with your tax professional to see if
there are tax-saving opportunities.
For example, if you purchased $10,000 worth of stock more than 12 months
earlier, but its value has declined to $8,000, you could sell it today and realize a long-
term capital loss of $2,000. By contrast, if another stock you owned for more than 12
months has returned a profit of $2,000 or more, you could also sell that position, and
have most, or all, of the gain offset by losses you’ve taken in your other investment. This
can be an effective way to help cushion the blow of investment losses by lowering your
tax bill.
Know when to hold
One key factor in determining just what tax rate applies to your sale of a capital
asset is the length of time you have held it. The most favorable rates apply when you own
the asset for more than 12 months. It then qualifies for long-term capital gains tax

2. treatment, rates that can be significantly lower than those that apply to assets sold within
a 12-month holding period. It is important to note that this only applies to investments
held in “taxable” accounts. Tax-deferred savings, such as your workplace retirement plan,
IRAs and annuities, are not affected by capital gains tax. Any distributions from tax-
deferred accounts are taxed as ordinary income, subject to higher rates.
Long-term capital gains are taxed at a 15 percent rate by the federal government
for taxpayers with gains taxed in the 25 percent tax bracket or higher. The rate is zero
percent for those whose gains fall in the 10 percent or 15 percent bracket for ordinary
income taxes. By contrast, if the sale is subject to short-term capital gains tax rate, the tax
owed will match the higher rate that applies to your ordinary income taxes. So a $1,000
gain on the sale of an asset held one year or less would result in federal income taxes of
$250 for a person in the 25 percent tax bracket. By waiting more than 12 months to make
the sale, the 15 percent long-term capital gains tax applies, resulting in a tax of just $150
– a $100 savings. If the same person were in the 15 percent bracket the federal income
taxes on the long-term gain would be zero percent. While taxpayers often realize long-
term capital losses to offset long-term capital gains, taking long-terms capital losses to
offset a long-term capital gain otherwise taxed at zero percent is not necessarily a tax-
saving strategy.
Timing for higher rates
Long-term gains on items such as collectibles, including coins, stamps and
antiques, are taxed at a maximum 28 percent for all individuals. For people below the 28
percent tax bracket, their ordinary tax rates apply. There is also a different rate for real
estate where depreciation was applied. Since depreciation reduces the cost basis on the

3. property, it also increases the realized gain on the sale. Depreciation amounts are
recaptured and are taxed at a maximum 25 percent rate (lower for those in the 10 percent
and 15 percent tax brackets).
Keep in mind that capital losses offset capital gains in the same year if that results
in a net capital loss, you can use up to $3,000 of the loss to offset ordinary income and
carry any remaining loss to future years. For example, if you sold assets at a $10,000
capital loss, but you only had $2,000 worth of capital gains to offset the capital losses,
you can only deduct $3,000 of capital losses to reduce your taxable income. That could
leave $5,000 in losses that can be carried forward to offset future gains or income in other
tax years. This is another factor to keep in mind as you manage asset sales near the end of
the year. It may make sense to sell only part of a losing position in the current year if you
will not be able to utilize all of the losses.
Find an expert
In the current volatile market environment, coordinated support from both your
tax professional and financial advisor can be critical to capturing the greatest tax benefit
from your investment moves.
Daniel J. Lensing, CPRC
Financial Advisor
Business Financial Advisor
Ameriprise Finanical Services, inc.
14755 No. Outer 40, Suite 500
Chesterfield, MO 63017
Tel: 636-534-2097
This column is for informational purposes only. The information may not be suitable for every
situation and should not be relied on without the advice of your tax, legal and/or financial

4. advisors. Neither Ameriprise Financial nor its financial advisors provide tax or legal advice.
Consult with qualified tax and legal advisors about your tax and legal situation. This column was
prepared by Ameriprise Financial.
Financial planning services and investments offered through Ameriprise Financial Services, Inc.,
Member FINRA & SIPC.
© 2008 Ameriprise Financial, Inc. All rights reserved.
File # 80160
(12/08)