Assuming no last-minute changes, the maximum US tax rate on long-term capital gains is set to increase on January 1, 2013, from 15% to 23.8% (including a 3.8% Medicare surcharge on investment income over $250,000). There is a lot of advice going around for people to realize capital gains before the end of 2012 to lock in the 15% rate. From what I have experienced, there are several reasons not to do this, especially for people who live in the United States (and especially in a state that also has income tax). In any case, it probably makes sense to wait until after December 14, the last day congress is in session this year, to see if the current laws get extended and/or other changes need to be taken into account.
However, if you are a Dutch resident taxpayer, subject to “Box 3” tax on your investments, this may be an especially good time to realize long-term capital gains (before the end of 2012).
What is the benefit? In general, you are allowed to take a foreign tax credit against your US tax on capital gains as long as you are a resident taxpayer in the Netherlands (which also means you are paying a “deemed” income tax on the same capital gains in the Netherlands). Therefore, to the extent you have foreign tax credits available, your US tax should be zero after taking the foreign tax credit.
It is more efficent to use your foreign tax credits against a 15% rate than against a 23.8% rate. For example, if you have $100,000 in unrealized long term capital gains, you could choose to realize the gains this year (2012) or next year (2013). If you sell this year, the tax will be $15,000. If you sell next year, the tax could be $23,800. If you have foreign tax credits of $20,000, it would cost you zero this year ($15,000 tax – $15,000 credit), but you would need to pay $3,800 next year ($23,800 tax – $20,000 credit).
In practice, what I am advising some clients to do is to realize capital gains, but only to the extent they will not actually owe any US (or Dutch) tax. The “wash sale” rules only apply to losses, so you can even sell and immediately repurchase the same investments in most cases. The only downside I can think of is the transaction costs, including the “spread” costs (since you sell for less than you buy at any given moment, so be careful with thinly traded stocks).
As always, please discuss this with both your US and Dutch tax (and investment) advisors if this sounds like something that might be interesting for you!