The post-2000 rate cuts for capital gains will produce automatic tax savings for some taxpayers, but will require others to pay taxes up-front for the privilege of a slightly lower capital gain rate down the road. Here is how it may affect you:

• If you are in the 15% Federal Tax Bracket - Your long-term capital gains rates for the year 2001 will be 10% for property held longer than 1 year, but not over five years, and 8% if the property was held more than 5 years. Why do I bring that up now? Because if you're considering selling a stock or other asset that you have owned over five years, you can save 20% in taxes by waiting until after the first of the year.
  
  
• If you are in the 28% Federal Tax Bracket -Things become far more complicated, because the lower tax rates do not apply to stocks or other assets acquired before 2001. The new 18% rate for long-term capital gains for taxpayers in the 28% tax bracket only applies to stocks acquired after 2000 and held for over five years. Because of this, stocks and other assets acquired before 2001 will never qualify for the irrevocable option. This option, in effect, allows you to pay taxes on the appreciation of any readily sellable stock as if it were sold on January 2, 2001. If the election is chosen, the stock will qualify for the 18% long-term capital gain rate and its holding period for purposes of the over five-year rule begins on January 2, 2001.

Who should consider such a tax strategy? Looking ahead to next year, a taxpayer might want to make this election for an asset that as of January 1, 2001 hasn't appreciated substantially (so that none or only a small amount of gain is recognized), but which the taxpayer expects to hold for at least five or more years and which he expects will appreciate further. This would be a good move if the taxpayer had losses or loss carryovers in 2001 to offset the gain recognized as a result of making the election.

A taxpayer should not make the election if it will cause a substantial tax to be recognized immediately, since the result of the election will be to save only 10% of the tax (i.e., the maximum tax rate is reduced from 20% to 18%) that would otherwise have to be paid.