Appreciating Investments

Investments that increase in value while paying no income to you will not be taxed until they are sold. By timing that sale carefully, you can improve your tax and financial position.

For example, you can wait to sell investments until a year in which your tax rate is low. Or, you can give the investments to your children older than 19 (or 24 for full-time students); they may sell them and be taxed at their lower rate. (Be sure to consider any potential gift tax implications.)

If your gross estate is less than $3.5 million (the estate tax exemption amoutn in 2009), or if you plan to use the estate tax marital deduction, keep the investment. It will pass to your beneficiaries tax free at your death. Your heirs may also benefit from a step-up in the investment's basis to its fair market value at the date of your death. (Based on current law, basis step-up may be limited for deaths after 2009.)

When deciding whether to buy or sell, consider the costs associated with an appreciating investment, including brokers' fees, closing costs, and property taxes, as well as potential appreciation.