How to Reinvest Capital Gains

Due to changes in the tax laws, some previous tax incentives for taxpayers to reinvest capital gains are no longer present. These include provisions that formerly provided tax benefits for homeowners who sold their homes and were able to reinvest their capital gains in a similar structure. Tax benefits remain for taxpayers who reinvest or roll over capital gains in a qualifying pension plan. Reinvestment may also offer other benefits.

Difficulty: Moderate

Instructions

Reinvest Capital Gains in Your Qualifying Pension Account

1. Check with a tax professional before closing, liquidating or drawing funds from a qualifying pension account to make sure that you maximize your tax benefits and avoid tax penalties.

2. Reinvest the capital gains that have accrued tax-free in your qualifying pension account, such as an IRA or 401k plan, by rolling over the funds into another qualifying account within 60 days after closing or liquidating the initial account.

3. Maintain records documenting the dates and amounts of the liquidation and reinvestment with any other documentation of your rollover.

Reinvest Capital Gains Even When There Are No Tax Benefits

4. Seek financial advice from a financial advisor, tax professional or broker to explore the benefits you might enjoy if you reinvest capital gains from the sale of shares or other securities, real estate or other investments.

5. Reinvest capital gain from securities sales to improve or otherwise realign your cost basis and save on commission expense. Some brokerage firms offer commission savings when customers regularly use their firm to reinvest capital gains or other proceeds from the sale of stock or other securities.

6. Diversify your investment portfolio by reinvesting capital gains in favorable sectors in order to manage risk and maximize reward.

Stay Current on Changes in Capital Gains Tax Laws

7. Consult with your financial advisor or tax professional regularly to review recent, current and forthcoming changes in the capital gains tax laws if your business or your investment profile involves regular investment disposition of assets with capital gains. Such changes occur often and can have dramatic effects on your investment results and strategy.

8. Read applicable IRS forms, such as IRS Pub 523, Selling Your Home, the instructions for Schedule D and Forms 544 and 550 to check for changes in the tax laws that may influence your decision to reinvest capital gains.

Tips & Warnings

• Speak to a financial advisor or tax professional for advice before undertaking any major transactions that may have capital gains implications.