Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 1
Phil, you'll love this.

A couple of weeks ago, trying to get more information about the new 18% 5 year capital gains rate and the fictional buy/sell of previously owned equities and equity funds, I e.mailed the IRS. I already shared the response I received, which stated that the value to use for the fictional buy/sell was at the open of 1/2/01 (the legislation uses the date 1/1/01 when the markets were closed). Today, without my having written again, I received another response.

The bottom line of this response is that the key value is at the close, not the open of 1/2/01. This is significant, because the first day of trading was not good for many stocks, so a decision on whether or not to elect to do the fictional buy/sell (my cut off is a 10% loss from when I bought) may depend on which is correct, opening or closing value.

"Due to a systemic problem, we may have responded to this message before. Please accept our apology for any inconvenience.
The deemed sale applies to any capital asset except collectibles and section 1250 recapture.
Mutual funds would be included. The code section 1(h) includes the election to treat property as sold on 1-1-2001. In the case of readily tradable stock that is held on Jan 1, 2001 it is treated as sold on the next business day, Jan 2, 2001 at its closing market price and bought on the same day at its closing market price. The deemed sale will be reported on schedule D and any tax due on a gain will be due and any loss will be disallowed. The sale will be treated as occurring on Jan 2, 2001 so will be reported on the return due April 15, 2002. There is also a required one year wait for the election to be valid. If the asset is actually sold before Jan 2, 2002 the deemed election is invalid. The deemed election starts a new holding period so 2006 is the first year someone in a 28% bracket could take advantage of the 2% difference in capital gain tax rates."

Phil, I'm assuming what is meant by the 28% bracket here is the capital gains rate bracket, which is really 20% but still called 28% on the forms, etc. Is that right?
Print the post  


In accordance with IRS Circular 230, you cannot use the contents of any post on The Motley Fool's message boards to avoid tax-related penalties under the Internal Revenue Code or applicable state or local tax law provisions.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.