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Should I sell now in 2000 with capital gains of 20% or should I wait till next week for 2001 when it will be 18%?

Whoa! You don't understand how the 18% rate works. By your mention of the 20% rate, you imply that you are above the 15% bracket. If you are, the 18% rate will only apply to gains with a holding period that begins after 12/31/2000. Click on the FAQ link above left and read the article about "Super Foolish" rates in the Investment Issues section.

Here is my situation:

I'm going to sell $32,000 of stock (BUD) that I've held since '89. It was gifted to me with a cost basis of $11.62. I'm going to sell enough to both pay off a margin account debt that is accumulating interest and pay the capital gains tax. I have discussed the desirability of doing this on another board. I have paid off a major Visa bill, and I'm working vigorously on an MNBA debt. I feel that I can and have been LBYM and am fully committed to it. So, I'm not going to replace this debt with more, once I feel relief.

My 2000 earned income was roughly 50,000. 50,000 plus 32,000 will be 82,000. Will I stay in the 28% bracket or will I jump up to a higher?

My 2001 estimated earnings will be 55,000 AFTER I have maxed out my 403b of 10,500. 55,000 plus 30,000 is 85,000. Will the capital gains be taxed at 18% or am I in a higher bracket?

I'm itching to get out of this debt, but should I wait a week?

You're two for two--you also don't understand how long-term capital gains affect the tax you pay on your other income. If you'd like to torture yourself you can see how tax is calculated by walking through Part IV of Schedule D. In oversimplified overview, you start with taxable income, which you separate into ordinary income and net long-term capital gains.

If your taxable ordinary income takes you above the 15% bracket (in year 2000 $26,250 on a single return and $43,850 on a joint return), all of your net long-term capital gains will be taxed at 20%. You then compute the tax on only your taxable ordinary income, add it to the tax on your long-term capital gains, and have your total income tax before credits.

Note that the amount of your long-term capital gains doesn't affect the tax you pay on your other income. Since we're so late in the year, you might get a small benefit by waiting until next week to sell. If you do, you won't have to pay the bulk, perhaps all, of the tax on the gain until 4/15/2002. While you're in the FAQ, read the article on Estimated Taxes and the requirements for avoiding the penalty.

Phil Marti
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