Time to Harvest Your Capital Gains?

December is a chance to balance 2007 gains and losses--and take advantage of a 15 percent tax rate.

By SHARE

Is this the golden age for capital gains tax?

Some advisers, wary of possibly higher tax in the future, say this may be the time to cash in on long-term gains—assuming you're ready to sell some stocks, mutual funds, or other assets.

The top tax on profit from selling securities and other assets owned longer than a year is generally 15 percent, compared with up to 35 percent on wages and most other income. The rate is just 5 percent for people in the bottom two regular tax brackets of 10 percent and 15 percent—generally this year with taxable income of up to $63,700 for a couple and $31,850 for a single filer.

"Those brackets can cover a fair amount of people," says Thomson Tax & Accounting analyst Robin Christian, noting that the income referred to isn't total income but rather income after deductions, exemptions, and adjustments.

Starting next year, people in the bottom two brackets will pay no tax on the gains, though partial tax can be due if the gain, when added to other income, pushes them into a higher tax bracket.

People in all brackets with appreciated shares they expect to go still higher could sell to grab low-taxed profit, then reinvest in the same shares for future growth, Christian says.

December is a last chance to balance gains and losses. If you sold shares at a loss earlier this year, for example, you could now sell some winners and use the earlier losses to offset the latest gains from tax. Or, sell dogs to generate losses to offset earlier gains.

After using capital losses to offset gains, you can use up to $3,000 a year of losses to offset wages or other income. Losses exceeding capital gains and $3,000 of other income can be carried over for use in future years.

Warning: Not all long-term gains are equal. Art, antiques, coins, stamps, and other "collectibles," including precious metals, are, for example, taxed at up to 28 percent.

Watch out when selling shares to harvest a loss when you still like the investment. You can't buy back those same shares until at least 30 days have passed or the loss will be disallowed.