The Capital Gains Timing Decision: A Quantitative Analysis.

A recent change in the long-term holding period for capital gains necessitates a reexamination of the capital gains timing decision. This paper presents a model for evaluating an individual taxpayer's decision to hold an asset for tong-term capital gain treatment. Factors included in the model are the time period involved, the time value of money, the marginal tax rate, and the taxpayer's alternative minimum tax position. Additionally, the impact of different gain recognition years and different long-tern holding periods on the model is analyzed. Surprisingly, under certain conditions, even with the higher effective tax rate, immediate short-term capital gain recognition may be preferable to long-term treatment.