The only way to be absolutely certain you will not be subject to a tax increase in 2009 on capital gains is to accelerate them to this year. At the same time, it seems clear that because the economy is in worse shape than originally thought, it is unlikely that President-elect Obama and the Democratic Congress will push through a capital gains tax increase in 2009. Based on recent statements made by close advisors, it appears there is support among them to simply let the Bush tax cuts expire at the end of 2010. That would mean no tax increases until 2011.
Recently, two of President-elect Obama's key aides signaled that despite Obama's campaign statements, a tax increase for 2009 may not be imminent.
Bill Daley, an adviser to Obama and commerce secretary under former President Bill Clinton, said on NBC’s “Meet the Press” that it “looks more likely than not” that President Obama will delay any tax increase until after 2010, when the Bush cuts for those making more than $250,000 are due to expire. "That looks more likely than not,” Mr. Daley said about the delaying the increase, “but the president-elect is very committed to the fact that there must be greater equity in the responsibility of taxes in this country. We must bring tax relief to the middle class, and he’s going to deliver on that.”
David Axelrod, the Obama campaign strategist who will be a senior White House adviser, also has indicated that the Bush tax cuts might be allowed to expire on schedule.
Nevertheless, on a recent visit to "Meet the Press," President-elect Obama had every opportunity to indicate his agreement with his aides and he chose to remain allusive. As a result, however unlikely a tax increase may be, there simply are no guarantees that none will occur.
See copy of transcript at http://www.politico.com/news/stories/1208/16278.html; President-elect Obama refuses to rule out the delay of tax increases until 2011 in response to Brokow's question number 17, immediately following the break.
So what should you do? First, harvest all losses available in your portfolio. Capital losses do not expire and can be carried forward indefinitely to offset future capital gains. Perhaps you already have enough "built-in" losses that regardless of when you trigger your gains, you will not have any taxes.
Second, consider the time value of money of paying the tax early vs experiencing an increase in the tax rate. If you trigger the gain before the end of this year, your tax must be paid no later than April 15, 2009; but if you trigger the tax next year, you can delay payment for up to one year longer.
Third, do the right thing from an investment perspective - never sell or not sell simply to obtain a tax result. Make sure that what you are doing makes sense economically.
Finally, don't rush a deal just to get it done before the end of the year. Doing so may result in costly mistakes.
Given the precarious state of the stock market and the worsening condition of our economy, it seems unlikely that anyone as smart as President-elect Obama would want to repeat the mistakes Herbert Hoover made in 1932 when he repealed Calvin Coolidge's tax cuts and signed the disastrous Smoot-Hawley trade bill that raised barriers to trade when such trade was needed most.