[Lateralus]

I decided a few months ago to put my savings into the market. One of the first things I read about was short term capital gains tax, whereby you are taxed at 35% on profits from stocks held for less than 12 months.

What I am hearing different opinions on is whether or not you are subject to the short term tax if you use your earnings to pretty much immediately invest in another stock.

Example; today I decided to take 1/3 of my AAPL position off the table after a pretty nice run from $91 to $131. I immediately reinvested that 1/3 to buy into an energy stock.

Am I still going to get taxed even though I reinvested it immediately?

Thanks.

[Eug]

capital

Dunno, but check out this page.

Buy-and-Hold -- Foolish and Tax-Savvy

That's the lowdown on the capital gains tax rates. What does it all mean for you as a Foolish investor? Well, a quick glance at the numbers above reveals the most important implication: The longer you hold your stocks, the less tax you're probably going to pay.

One bone of contention between Fools and the Wise is the value of holding stocks for the long term. A Foolish investor usually tries to find great companies in which to invest, aiming to hold the stock for years (or decades) as long as the reasons for buying the stock remain unchanged. The Wise, though, will frequently assert that it can be more profitable to jump in and out of the right stocks at the right time, holding them until you reap the expected gain or until something better comes along.

Look at your own situation and tax bracket. For example, if you hold on to a security for longer than a year, you're likely to be paying 20% of your gain in taxes. If your holding period is a year or less, the gain could be taxed as much as 39%. With a mere $1000 gain, that's a difference of $190, or 19%. Are your short-term trading earnings going to be substantial enough to compensate for the fact that you'll be paying nearly twice as much in taxes? Not likely.

For more information on capital gains tax issues and other investment tax issues in general, you can always review IRS Publications 544 (Sales and Other Dispositions of Assets) and 550 (Investment Income and Expenses), available at the IRS website.

Have the laws changed since then?

[peeb]

Originally Posted by Lateralus 

I decided a few months ago to put my savings into the market. One of the first things I read about was short term capital gains tax, whereby you are taxed at 35% on profits from stocks held for less than 12 months.

What I am hearing different opinions on is whether or not you are subject to the short term tax if you use your earnings to pretty much immediately invest in another stock.

Example; today I decided to take 1/3 of my AAPL position off the table after a pretty nice run from $91 to $131. I immediately reinvested that 1/3 to buy into an energy stock.

Am I still going to get taxed even though I reinvested it immediately?

Thanks.

You really need to get advice from a tax accountant on this.

[itai195]

Yup, you're going to get taxed unless that money is in a tax-sheltered account. The short-term rate is the same as your marginal income tax rate... which could be as high as 35%, but I'm guessing that if your marginal tax rate was 35% you would already know the answer to this question