Newspaper article THE JOURNAL RECORD

Lawmakers Start Work to Fix Tax Cut Problems Capital Gains, Losses Yet to Be Worked Out

Newspaper article THE JOURNAL RECORD

Lawmakers Start Work to Fix Tax Cut Problems Capital Gains, Losses Yet to Be Worked Out

Article excerpt

WASHINGTON (Bloomberg) -- U.S. lawmakers and Clinton administration officials say they'll fix a raft of technical problems in the $95 billion tax cut that Congress enacted in August.

The House Ways and Means Committee is already moving to clarify how taxpayers should treat capital gains and losses under the complicated set of rates and holding periods created by the new law.

Individuals typically use losses on asset sales to offset the gains on other sales, thereby reducing the amount of taxes paid on all capital sales in a given year. Long-term losses are first used to offset long-term gains, while short-term losses are used to offset short-term gains. After matching losses to gains in one category an investor can use any excess losses to reduce taxes in the other category. The law enacted in August, however, established more complicated holding period rules, and investors questioned which losses could be used to offset which gains. "Practically, there were circumstances under the law that was passed by Congress that would have resulted in a loss that would have only saved you 20 cents (on the dollar), and now with the change that loss will save you 28 cents," said Clint Stretch, who tracks tax legislation for the accounting firm of Deloitte & Touche, to illustrate the impact of the change. The new law reduced the top effective capital gains tax rate for couples making more than $41,200 to 20 percent, from 28 percent, for assets held for at least 18 months. Taxpayers that held investments between 12 months and 18 months will pay up to 28 percent rate on capital gains. A taxpayer who held an asset for less than a year will pay the ordinary marginal income tax rate, which can be as much as 39.6 percent. The letter to the Treasury Department clarifies that taxpayers will be able to use losses to reduce the taxes they pay on capital gains taxed at the highest rates, and then use those losses to cut the taxes they pay on holdings subject to the 20 percent rate, according to Rick Grafmeyer, a tax expert and partner at Ernst & Young. …

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