Hey all you smart mutual fund investors, listen up! Check your accounts on line now, or call your broker or investment company,to see if your fund issued any capital gains this month. That’s right, even though your fund’s value probably took a nose dive, there very well may have been trading in that fund throughout the year that could have resulted in a capital gain. Mutual funds distribute the bulk of such gains during December to their shareholders, so you COULD owe income tax on capital gains even though your fund is sporting a big fat loss, or even a mild-paunchy loss…
You see, when a lot of novice or nervous investors call 1-800-REDEEM (that’s a joke, not a real number to my knowledge) fund managers have to raise enough capital by 4pm EST each day of trading to satisfy all the redemptions. Well, quite a few savers sold out of mutual funds when the markets started declining. (Generally it’s savers, not investors, that panic and sell prematurely incidentally.) So, quite a few mutual fund managers had to juggle their portfolios, invariably selling out securities that had built-in capital gains. Yes, I know, a distant memory…over 6 months ago, even…but I digress.
If the mutual fund manager wasn’t able (or interested) to offset those gains with losses, there may have been an excess of gains over losses, resulting in us shareholders having to declare a portion of those gains on our individual income tax returns.
Here’s an example: Your mutual fund issued a gain to your account in mid December totalling $1,000. Look through your portfolio (as I mentioned in my earlier blog today) for a security whose value is at least $1,000 less than your basis (fancy term for what you paid for it, including all reinvested dividends, if applicable) and sell that security booking a $1,000 capital loss. Your losses offset your gains (for the most part it’s that simple, although long-term capital losses-securities held one year and one day–offset long-term capital gains, and short-term capital losses–securities held less than one year and one day–offset short-term capital gains).
Finally, the federal government allows you to deduct an additional $3,000 in excess of all offsetting capital gains and losses each year against ordinary income. If you have more than $3,000, you get to carry the excess forward to future tax years. Some states follow the feds in the unlimited carryforward of capital losses, New Jersey, however does not. Check with your CPA for details on this, to be sure, if you expect heavy losses in 2008.
At the end of the day, its the end of the year. No sense in paying unnecessary income taxes. So, while you did not actively sell any securities this year to produce a capital gain, you may be an unsuspecting shareholder who DID receive a capital gain. There’s still time to avoid paying tax on that by “booking/realizing” an equal dollar capital loss, or even quite a bit more than the amount of capital gains, and deducting your $3,000 excess on your 2008 return and pushing the balance forward. Yes, Ms. Dubious, there WILL be capital gains in your future, and they JUST might start in 2009! You’ll be prepared however, with perhaps an ample supply of carried forward capital losses so you won’t have to pay taxes till they’re all used up. Now THAT’S planning, and THAT’S effective planning.
Consult your broker and/or CPA for details. (Most likely your fee-only financial planner has already contacted you and handled this for you.)
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#1 by WPMixer on July 18th, 2010
Either Obama is a lowgrade moron OR is purposely destroying our economy, in the face of facts about capital gains. You decide.
#2 by Meow on July 18th, 2010
Unless you specified which lots you sold at the time you sold them, you have to average the market gain (less sales commissions) against the average cost.
If you are selling large numbers of shares with very different cost bases, you should tell your broker to sell a specific tax lot. This will depend on whether you want to take a loss to offset gains, or take max gains to offset other losses.
#3 by Wordpress on July 19th, 2010
@andywclark the voters only wanted him to be the first black prez i voted for mccain
#4 by BORICUA on July 19th, 2010
Nope. sounds about right. You need to sit with your financial planner and have them go over how your investments work. The 1099DIV shows dividends earned on your investments for the tax year.
#5 by Anonymous on July 19th, 2010
For purposes of fairness? Are you serious…despite the fact that it may be WORSE for the economy and government revenue, but you want to do it because you don’t think it’s fair people are making money? If you want a ‘FAIR’ tax system, how about abolishing capital gains and income tax altogether, and replacing everything with a sales tax. Tax people based on how much they SPEND, not how much they earn. Since rich people spend more money anyway, they’ll end up paying more, THAT would be fair.
#6 by DevD on July 19th, 2010
Mr. HMT answer is my answer.
Land means agricultural land ??.
In case if it is a agricultural land then there is not tax on it. Agricultural land is exempt from capital gains. The conditions are given below. Read it in the website.
http://www.taxworry.com/2007/01/agriculture-land-sale-is-tax-free-but.html
#7 by Free Blog on July 19th, 2010
How the hell did this guy win the election?
#8 by Anonymous on July 19th, 2010
@fiatalfa1 Ironically european leaders are the deficit hawks right now. Germany (3% budget deficit in 2009) passed a constitutional amendment requiring a balanced budget from 2016. Liberals would be dismayed at how pro-corporate is Europe. The top tax rates on corporate income are 10-15 points lower than in America; specially lower in Scandinavia and Switzerland. To sustain the Welfare State in Europe, 3/4 of tax revenue come from labor and consumption and 1/4 from capital and corporations.
#9 by wesred55 on July 20th, 2010
The capital gain itself must be included in taxable income for the purpose of determining your tax bracket. There aren't any indications in the IRS publications/instructions that capital gains should be excluded from taxable income for tax calculation purposes.
If you are preparing your own return, it might be helpful to fill out the Capital Gain Tax Worksheet to verify the tax for your particular situation. You can find the worksheet on Page 38 of the 2006 1040 instructions (second link below). Good luck!
#10 by Chris R on July 20th, 2010
You have been allowed depreciation over 39 years, so you have about 20% of the cost already depreciated. If you have not made improvements to the property, your basis is about $64K and your gain is about $316K (minus sales commissions). You will pay long-term capital gains taxes of 15% on the gain, or about $47K.
If you have made improvements to the property, you would add that to the basis, and subtract depreciation on the improvements over the years you had those improvements in place, to arrive at your adjusted basis. Then subtract your adjusted basis from $380K to arrive at the gain.
#11 by WPBlog Shop on July 20th, 2010
New Obama Video.
watch?v=EPyKUuyK_sM
#12 by Blogger on July 20th, 2010
I’m laughing so hard…let’s see “You can’t use China as a credit card”….yeaaaaahh OK Mr. President. “Pay as you go” loll lol lol lol lol.
Pure comedy
#13 by Anonymous on July 21st, 2010
@alexedit1 Bush didnt walk into a surplus. Clinton ROBBED Social Seacurity and medicare to create a surplus. SS now takes in less money than its handing out. Plus Greenspan under Clinton caused a Tech bubble by lowering interest rates and flooding the system with cheap credit. It collapsed when Bush came into power plus 9/11 so he did the same. Low interest rates was cheap money for houses plus “stimulus” spending raised GDP figures even though that was borrowed money from China. (continued)
#14 by HartMen on July 21st, 2010
You can each exempt $250,000 from capital gains, or $500,000 total gain from the sale.
#15 by Anonymous on July 22nd, 2010
conti. Obama is doint the EXACT SAME as Bush did before him but much much bigger. It didnt work for Bush and its not gonna work for Obama. These policies have always lead to a default, and nations dont default like you or I they inflate the currency. Which is print billions like Zimbanwe did. To pay off Americas debt you need at the very least the dollar to be devalued a 3rd, but thats only a part time solution. Itll happen again and again unless the books are balanced!
#16 by Peter C on July 22nd, 2010
If you are married and lived in and owned the house two of the five years before you sell, the first $500,000 in gain is tax free. It is $250,000 if you are single.
#17 by sicilygrl8 on July 22nd, 2010
If you make short term capital gains then you would have to pay at your regular tax rate. If you held the property more than a year you would pay long term capital gains. If you do multiple deals in a year it is considered a business and you would file a Schedule C and pay self employment tax. If you live in the house as your principle home then the rules are different but that is at least a two year time frame.
You may need more specific tax advice than can be provided in this forum.
#18 by de on July 22nd, 2010
Yes, do a 1031 exchange, in which you replace the land that you sold for new land. All you are doing however is merely postponing the tax, not eliminating it.
I have attached a link regarding 1031 exchanges.
By the way, if it's long-term gain, the federal tax rate would be maximum of 15%, don't know about state tax effect as I don't know the state you live in or the state the land is in.