Tax Tips: Making the Most of Capital Gains

IF YOU'RE A stock or mutual-fund investor, then you probably know that investments held for more than a year and sold for a profit are subject to lower tax rates as long-term capital gains. Generally speaking, if you're in the 25% tax bracket or higher, you will owe no more than 15% of your profits to the Internal Revenue Service.

But what you might not realize is that more than just stock and mutual-fund shares are eligible for favorable capital-gains tax treatment. If you sold, say, your vacation time share or your country-club membership, then you just might be pleasantly surprised to discover you'll owe no more than 15% on the gain (assuming that you held the asset for more than a year).

Here's a list of some of the most common types of assets potentially subject to these lower rates:

1. Securities options (as in puts and calls) held as personal investments.

2. Stock of closely-held corporations.

3. Collectibles held as personal investments, like baseball cards, stamps, rare coins, art, etc. In this case, a 28% (not 15%) maximum federal tax rate applies.

4. Personal residences (including vacation homes). In this case, the 15% maximum rate generally applies to gains beyond what you can exclude (not pay tax on) under the $250,000/$500,000 home-sale gain exclusion privilege. However, a 25% maximum rate applies to gains triggered by certain depreciation deductions claimed against your property.

5. Vacation time-share interests.

6. Country-club memberships.

7. Personal autos (that aren't collectibles). Keep in mind, this means that you've sold your car at a profit, which is unlikely.

8. Personal-property items (that aren't collectibles) in general — such as jewelry, furniture, a lawn mower and so on.

9. Rental real estate owned by an individual, partnership, limited-liability company or S corporation. (The standard 15% maximum rate applies, but gains from depreciating property may be taxed at up to 25%.)

10. Land held as an investment by an individual, partnership, limited-liability company or S corporation.

11. Your ownership interest in a partnership or a limited-liability company. In this case, the 15% maximum rate usually applies, although depending on the assets of the partnership or limited-liability company, part of your gain may be taxed at higher rates of up to 35%.

12. Land used in a business owned by an individual, partnership, limited-liability company or S corporation. This could be the actual land that your small business is located on, or it could be land held by your small business, such as an apple orchard.

13. Options to buy investment land when the option is owned by an individual, partnership, limited-liability company or S corporation. This is the option to buy land at a certain price over a set period of time. It could be, for example, that you've purchased the option to buy a plot of land that you think is going to appreciate because of future development in the area.

14. The right to receive money for release of a restrictive covenant in a land deed when the deed is owned by an individual, partnership, limited-liability company or S corporation.

15. The right to a condemnation award when the right is owned by an individual, partnership, limited-liability company or S corporation. This would apply if, say, your property were condemned by the city so that it could take over the land and build a civic building.

16. The right of a tenant to receive a lease-cancellation payment when the tenant is an individual, partnership, limited-liability company or S corporation. This would apply if you were renting property and your landlord cancelled your lease.

17. Contract rights owned by an individual, partnership, limited-liability company or S corporation. For example, you might own a license giving you the right to use a software program. If you can sell that license to someone else for a gain, it will be taxed at no more than 15%.

18. Most other intangible business assets (such as intellectual property, trade secrets, goodwill and so on) owned by an individual, partnership, limited-liability company or S corporation. In these cases, the 15% maximum rate generally applies. However, if the business intangible was amortized, gains attributable to the amortization deductions are taxed at your regular rate (up to 35%).

19. A stock-exchange membership owned by an individual, partnership, limited-liability company or S corporation. Obviously, there aren't too many of these, but this does apply to regional exchanges as well.

20. Depreciable or amortizable assets used in business — provided the asset is owned by an individual, partnership, limited-liability company or S corporation. Gains attributable to depreciation or amortization deductions are generally taxed at your regular rate (up to 35%). The 15% maximum rate generally applies to the balance of the gain.