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I have a couple of events which will affect my 2009 taxes.
1) Next week we close on the sale of rental property, which will result in about $12k in long term capital gain.
2) In October we are expecting our second child.

I know that Congress is guaranteed to make tax changes this year, given all the campaign promises and economy "stimulus" business going on. My question is, given what we know today, do I need to adjust my withholding to cover the capital gain or is the increase from the gain balanced by the addition of a child?

Based just on the information provided, you're looking at an increase in taxes of somewhat less than $1000. Given the uncertainty of what tax law changes will emerge from Congress and their impact on your situation, I wouldn't make any adjustments other than ensuring that you have more withheld than your 2008 tax liability (110% if AGI >$150k). I also wouldn't plan on the extra exemption for your child until s/he is born. Should tragedy strike during the pregnancy not only would you have to deal with the emotional issues, you would be underwithheld and subject to penalties or last minute scrambling.

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