With the current status of the economy, it is important to make good investment decisions. The sale of investments may result in gains that are subject to tax. By planning the sale of your investments, you may be able to lessen the potential tax consequences.

» How are capital gains or losses triggered? Capital gains and losses result when a capital asset is sold. Capital assets include stock investments, any property except for inventory, depreciable business property, copyrights, literary or artistic property, business accounts, or U.S. government publications.

If the capital asset has appreciated in value since it was acquired, a capital gain will be triggered upon sale. If the capital asset has lowered in value, a capital loss will be triggered.

» How are they taxed?

Net capital gains are generally taxed according to the length in which the capital asset was held. If the capital asset is held for less than one year, the net capital gain is taxed at the ordinary income rate based on your tax bracket (up to 35 percent). On the other hand, capital assets held for more than one year are taxed at the long-term rate of 15 percent. This long-term rate is currently only available until Dec. 31, 2010. Keep in mind that the trade date, not the settlement date, determines the year in which the net capital gain will be taxed.

Capital losses can be used to offset capital gains. Up to $3,000 of the excess capital loss over capital gains can be used to offset ordinary income. This amount is limited to $1,500 for married taxpayers filing separate returns. For example, in 2008 a taxpayer has a $3,000 long-term capital gain and a $7,000 short-term capital loss. The taxpayer can use the short-term loss to offset the long-term gain and therefore has a net capital loss of $4,000 in 2008. Accordingly, $3,000 of the excess loss can be used against ordinary income in 2008 and the remaining $1,000 must be carried over to the next tax year. Unused capital losses can be carried forward indefinitely.

» Tax strategies for capital gains: The timing of the sale of investments is important. You may consider selling investments with an unrealized loss sooner rather than later if you anticipate having a net capital gain at the end of the tax year. By selling investments with an unrealized loss, you will have capital losses which you can use to offset your capital gains. Alternatively, you may consider selling investments with an unrealized gain if you have net capital losses available. Remember to also consider market conditions and expectations when dealing with tax planning for gains and losses.

The 15 percent tax rate for long-term capital gains is currently only available until Dec. 31, 2010.At this point we are unsure what will happen to the long-term capital gains rate after this date. Additionally, with the economic conditions that the federal government is facing, the rates may change sooner. Therefore, taxpayers may want to plan whether they would want to sell their appreciated long-term capital assets before the higher rates come into effect.

By planning the timing of your investment sales, you may be able to save on taxes. Since year-end is approaching soon, it may be a good time to contact your tax adviser for tax planning strategies.