from a tax perspective the real advantages of investing in capital assets - (1) gains are
deferred for tax purposes until the taxpayer sells or otherwise disposes of the assets18
and
(2) gains generally are taxed at preferential rates relative to ordinary income.
Why the favorable treatment? - One reason is that taxpayers may not have the
wherewithal (cash) to pay the tax on their gains until they sell the investment.
Another is that the preferential tax rate provides an incentive for taxpayers to invest in
assets that may stimulate the economy.
most long-term capital gains are taxed at either 0 percent, 15 percent, or 20 percent, -
depending on the rate at which the gains would be taxed if they were ordinary income.
Long-term capital gains that would be taxed at 10 or 15 percent - as ordinary income
are taxed at 0 percent;
Short-term capital gains are taxed - at ordinary rather than preferential rates.
long-term capital gains are taxed - at preferential rates.
gains that would be taxed at 39.6 percent as ordinary income - are taxed at 20 percent;
unrecaptured §1250 gain - certain long-term capital gains are taxed at a maximum rate
of 25 percent
collectibles and qualified small business stock - others are taxed at a maximum 28
percent rate
losses on the sale of personal-use assets are not deductible - therefore never become
part of the netting process.
When taxpayers sell capital assets at a loss to related parties, - they are not able to
deduct the loss.
If the taxpayer believes that the stocks with unrealized losses are likely to appreciate in
the near future, she may prefer not to sell those stocks but rather to keep them in her
investment portfolio. What might this taxpayer do to deduct the losses while continuing
to hold the investment in the stocks? - For one, she might be tempted to sell the stocks
and then immediately buy them back. Or, she might buy more of the same stock and
then sell the stock she originally held to recognize the losses. With this strategy, she
hopes to realize (and then recognize or deduct) the losses and, at the end of the day,
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