How to Sell Your Long-Term Portfolio Holdings Without Paying Tax

This article expands on my other article showing you how to salvage your finances in a tough market. 2008 and 2009 are prime years to sell highly appreciated securities. Even your stocks aren't as highly appreciated as they were a year ago. Investors with securities that they've held for years now have a window in which they can escape capital gains up to certain limits. This article shows you how you can cash in on this exclusion and liquidate long-term holdings painlessly.

Things You'll Need

• Stocks that you've held for the long-term that you'd like to sell, the more highly appreciated the better

Instructions

1. Determine approximately how much taxable income you will have to declare on your taxes next year. Filers in the lowest two brackets are eligible for this exclusion. For MFJ, the income limit is $65,100, HOH is $43,650 and single is $32,550. But remember, the limits apply to your taxable income, not your adjusted gross income. This means that only the income left after taking all deductions and exemptions must be under these limits.

2. Sell the stock. Now that Obama has been elected, it is possible that future legislation could overturn this tax break, so those who are apprehensive about this possibility should go ahead and liquidate what they can now. But only sell as much as you can without going over the limit (if your intention is solely to take advantage of the tax break).

3. Admittedly, this is probably not the best time to sell stocks, but the absence of capital gains tax can allow you to recoup much of this loss. Selling off long-term holdings and converting them to safer or more diversified investments such as mutual funds can go a long way toward resurrecting your portfolio.

Tips & Warnings

• Employees who participate in company stock plans may want to consider this exclusion to liquidate a portion of their company holdings and diversify their porfolios.

• This exclusion applies to taxable investments only. Stocks inside tax-deferred retirement plans are ineligible for this treatment.