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Howdy Fools,
I understand that the capital gains tax rate (for those in the 15% bracket) who hold their stocks for more than a year is 10%.
What I can't figure out is this: What if the income generated from capital gains puts one OVER the 15% tax rate into the next tax rate? That is, say I'm just a few thousand dollars over the 15% tax bracket because of my capital gains. Should I sell long or short?
I'm in this situation because, as a student, most of my income comes from dividends, interest and cap gains. And the cap gains may be just enough such that I make it into the next income bracket. Being in the 15% bracket, it's clear that I should hold for at least a year and a day. But if I'm nudged just a bit into the next bracket by my capital gains, what should I do--hold for less than a year or for more than a year?

--Neil
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The few thousand dollars over the 15% tax bracket will be taxed the the 20% long term capital gains tax rate for the 28% bracket.

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ke110gg is being a bit terse (but not inaccurate, no criticism intended). What happens is, you "fill up" your low tax rate gains. Then the remainder goes at the higher rate. To see precisely how it works, fill out a mock Form 1040, Schedule D. This is basically a worksheet and you get led through the steps.
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<<What I can't figure out is this: What if the income generated from capital gains puts one OVER the 15% tax rate into the next tax rate? That is, say I'm just a few thousand dollars over the 15% tax bracket because of my capital gains. Should I sell long or short?
I'm in this situation because, as a student, most of my income comes from dividends, interest and cap gains. And the cap gains may be just enough such that I make it into the next income bracket. Being in the 15% bracket, it's clear that I should hold for at least a year and a day. But if I'm nudged just a bit into the next bracket by my capital gains, what should I do--hold for less than a year or for more than a year?>>

As pointed out in the previous posts, you will "fill up" your bracket...and your gains will then be subject to the higher 20% rate. But that's not necessarily a bad thing...especially when compared to the tax on short term rates.

The Motley Fool Investment Tax Guide 2000 takes great pains to try to explain how your bracket "fills up"...complete with examples. It CAN be a difficult concept to get your arms around. So you might want to check out the book for additional information.

TMF Taxes
Roy

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