Using Portfolio Losses

Capital gains on investments held for one year or less are short-term capital gains taxed at ordinary income tax rates. For investments held over one year, the maximum long-term capital gains tax rate in 2010 is 15% (0% for taxpayers in the 10% or 15% tax bracket). While the 15% rate is significantly below the maximum ordinary income tax rate of 35%, it still takes a significant chunk out of your investment portfolio.To help minimize your capital gains tax bill, you should actively harvest any losses in your portfolio. Some strategies to consider include:

• Recognize losses to at least offset $3,000 of ordinary income.
• Consider recognizing all, or a substantial portion, of any losses in your portfolio.
• Use stock losses to offset other capital gains.
• Don't gift stocks with losses.

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