The decision to sell this investment now or wait until next year is becoming more and more important.  Tax rates across the board will likely start to increase in 2011 with long-term capital gains tax increasing at least 5% from 15% to 20% or even higher.  Therefore, it is strongly advised to review your portfolio and the impact that a transaction will have on your tax liability, if any.

Should I Realize Gains?
Generally, it is not a good idea to trade around investments because of tax rate changes. However, if you have some fairly LARGE net unrealized gains, you may want to consider selling those investments before year end as opposed to waiting until 2011 when tax rates are higher. If you had a $300,000 long-term unrealized gain investment that was realized now where long-term capital gains tax rates are at 15% vs. possibly 20% next year, you would be saving yourself $15,000. This is just an example as there maybe other factors like carry-forward losses from the prior years which may influence your decision.

Figuring Out My Net Capital Gain/Loss
You need to net your long-term capital gains (> than 1 yr investment) with the long-term losses and then your short-term gains (< than 1 yr investment) with your short-term losses. Then, if applicable, you can net the short-term gain or loss with the long-term gain or loss together to see if you have a net capital loss for the year. Remember you can offset capital losses against gains in the current year and realize up to $3,000 in losses against ORDINARY Income (i.e. wages). If your loss exceeds the $3,000, the remaining is carried forward to future years as either a net short-term capital loss and/or long-term loss depending on the character of the loss. This means that prior year short-term loss must first offset the current year short-term gain and the long-term loss must first offset the current year long-term gain.  You can go through this exercise now & do some scenario analysis with tax rates and changes in the value of investments to see what makes the most sense from a tax and investment perspective.

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