Capital Gains - Should you sell now?

One of the biggest questions I have been getting as we start this tax planning season is whether or not the client should sell a capital asset this year or continue to hold onto it. As you may know the capital gains tax is levied on the sale of property such as stock and real estate.

Why is this question coming up?

Currently, the capital gains tax is 15% for any asset held longer than one year. Without offending anyone's political sensibilities all the major Democratic presidential candidates have proposed raising the rate. Clinton is on record for bumping the rate to 20% and Obama and Edwards both favor a 28% plan. It's reasonable to expect that any of these candidates could win in 2008 and they could have a Democratic congress to work with. So it is realistic to think that the rate might go up to 28% by 2009.

Here's the question I have been asking clients: Is this an asset you want to sell? If the answer is yes, by all means the client should sell the asset and pay the tax this year. My reasoning is that I know one thing to be true right now and that is capital gains are at the lowest rate they have been since I've been doing taxes. I don't forsee a scenario where the rate will go down, but I can envision a situation where the rates jump back up to 28% in the very near future.

Mike