Does It Make Sense to Sell Investments Before the End of the Year?

With the potential for higher long-term capital gains (LTCG) rates under the proposed Biden administration, many investors are considering selling their investments by the end of the year to avoid paying additional taxes. But is this the right move for you? Let’s delve into the details of LTCG and explore factors to consider before making a decision.

What are Long-Term Capital Gains?

LTCG refers to the profits you make when selling an investment you’ve held for more than one year. The current federal LTCG rate is 20% for individuals in the highest tax bracket. However, under the proposed Biden plan, this rate could increase to as high as 39.6% for those earning over $1 million.

How Potential LTCG Rate Changes May Affect You

If you’re considering selling investments that have appreciated in value, the potential LTCG rate changes could significantly impact your tax liability. For instance, if you sell an investment for $100,000 and it has an adjusted basis of $50,000, your LTCG is $50,000.

Under the current rate, you would pay $10,000 in taxes (20% x $50,000). However, if the proposed rate increase goes into effect, your LTCG tax liability would rise to $19,800 (39.6% x $50,000).

Factors to Consider Before Selling

While the potential for higher LTCG rates may prompt you to consider selling, there are several factors to weigh before making a decision:

– Investment goals and time horizon: Consider your long-term investment goals. If you plan to hold your investments for many years, the timing of your sale may be less crucial.
– Investment performance: Assess the performance of your investments. If you’ve experienced strong returns, selling now may be a wise move. However, if your investments are still growing, you may want to hold onto them for further appreciation.
– Tax implications: Calculate the potential tax savings by selling now versus waiting until next year. Consider the additional taxes you may face under the proposed rate changes.
– Market conditions: Monitor market conditions and consider whether it’s an opportune time to sell your investments. Don’t sell out of panic if the market is experiencing a downturn.

Seek Professional Guidance

It’s crucial to seek advice from a licensed insurance agent or financial advisor before making any significant investment decisions. They can help you evaluate your situation, understand the tax implications, and make informed decisions aligned with your financial goals.

Remember: The information provided in this blog is for educational purposes only and should not be taken as professional financial advice.