THE MOTLEY FOOL ASK A FOOL

Q: Can I avoid a capital gains tax when I sell?

A: The capital gains tax you’ll owe generally depends on two main factors: your adjusted gross income and how long you owned the stock. Profits earned on stocks you held for a year or less are considered short- term capital gains and are taxed at your marginal tax rate, or bracket. But if you held the stock for at least a year and a day, the profit qualifies as a long- term capital gain and is taxed at more favorable rates.

There are three main reasons investors may not have to pay capital gains tax.

First, if you’ve owned the stock for more than year and fall into the 10% or 15% tax bracket, your long- term capital gains tax rate is 0%. The second way is if you own the stock in an IRA or other tax- advantaged account. You won’t owe any capital gains tax on the sale this year, but if it’s a traditional IRA, eventual withdrawals will be taxable. Finally, if you have capital losses, you can use them to offset your capital gains.

If none of these apply, you probably can’t avoid paying capital gains tax.