Jay writes:
Hello Gina! I’m married and I file jointly with my wife. Our taxable income is about $45,000. I believe this means I can have capital gains of about $20K without paying taxes on these gains this year or next (assuming my income stays the same for 2009, which I believe it will).

Is there any reason I can’t sell stock my stock that has a gain and then turn around and buy the same stock at the same time and still not pay any capital gains tax and have an increase in the basis with the new stock I purchased?

Thanks,
Jay

My reply:
For 2008, since you will be filing MFJ, if your taxable income falls between $16,050 and $65,100, you will be in the 15% tax bracket. For 2008 through 2010, capital gains and certain qualified dividends will be taxed at 0% for taxpayers in this tax bracket.

This 0% rate would apply to your adjusted net capital gains. Your adjusted net capital gains includes any qualified dividend income (the dividends that are not treated as investment income) and your net long-term capital gains less your net short-term capital losses, not including any gains from the sale of collectibles, qualified small business stock and depreciable real property.

Based on the information that you provided to me, I cannot think of any reason why your plan would not be allowed; however I would run a tax projection to make sure that your large capital gains do trigger Alternative Minimum Tax (AMT).

Best wishes,
Gina