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By Stephen J. Kahn, CPA

The IRS Restructuring and Reform Act of 1998 had a happy surprise for investors Ė shortening the long-term capital gains holding period. This means that, in general, you only have to own a capital asset, such as a stock or mutual fund, for twelve months (instead of eighteen months under the old law) to qualify for a lower tax rate.

How do you calculate the holding period? Use the calendar date. For example, if you bought a stock on February 9, 2000, you will be eligible for the long-term rate for its sale beginning on February 10, 2001. For publicly traded securities, use the trading date and ignore the settlement date. Recordkeeping is the key as you calculate the holding period. 

Checking holding periods is important for locking in your tax advantage. Long-term losses will first offset long-term gains. If you have short-term gains, it may reduce your taxes to find offsetting short-term losses by year-end.

Mutual funds present a special case for year-end planning. Many of them distribute capital gain dividends near the end of the year -- your funds can give you the exact date. If you are planning to sell shares of a fund to lock in gains or losses, consider doing it before that distribution date. You will avoid the taxable income in the distribution.

There are special situations, as usual, in the new law. Be sure to consult your tax preparer if you have capital loss carryforwards, or if you are selling depreciated property, collectibles, or small business stock.

We are available to help you investigate all tax saving opportunities. Letís meet to develop a strategy tailored for your tax situation. Please contact us at 703.370.0019 to schedule a convenient appointment.

(Stephen J. Kahn is a Certified Public Accountant and an Alexandria resident. The reader is cautioned that this information may not be applicable to the readerís specific circumstances or needs. The reader should contact a tax professional prior to taking any action based upon this information. Stephen J. Kahn, CPA assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information herein.)




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