Considerations
Net capital gains and losses are fully part of adjusted gross income (AGI), with the exception that if your net capital loss exceeds $3,000, you can only take $3,000 of the loss in a tax year and must carry the remainder forward ($1,500 if you are married filing separately). If you die with carried-over losses, they are lost. Short-term and long-term loss carryovers retain their short or long-term character when they are carried over.
This discussion is about the various tax rates on capital gains. It is important to note that these rates are only the nominal rates. Because capital gains are a part of AGI, if your AGI is such that you are subject to phaseouts and floors on your itemized deductions, personal exemptions, and other deductions and credits, your actual marginal tax rate on the gains will exceed the nominal tax rate.
Short-term gains are taxed as ordinary income. Therefore, the nominal tax rate will be whatever tax bracket you are in. See "What the TaxMan Really Gets?" for more information on nominal tax rates.
Long-term gains are somewhat more complicated. The majority of people now only have two rates to worry about - 5% and 15%. Your long-term gains are taxed at 5% (0% in 2008) if you are in the 10% or 15% bracket overall and 15% if you are in any other bracket. The long-term gains are included when figuring out what bracket you're in. However, the 5%/15% rate doesn't apply to all long-term gains. Long-term gains on collectibles, some types of restricted stock, and certain other assets are instead subject to a minimum 28%. Another word of caution: these rate are only 'temporary,' being scheduled to revert to the 'old' 20% and 10% rates that had been in place before 2003 tax legislation removed them.
Figuring your best tax strategy for capital gains and losses in 2003 is made especially difficult because of "transition rules." These special rules are unique to 2003 and are the result of the capital gains rate being changed in midstream - net capital gains before May 6, 2003 are generally taxed at 20% and those after May 5, 2003 at 10%. Losses, both short and long-term, must match gains properly, however. Also thrown into the equation is qualified dividend income, which is retroactive to tax years beginning in 2003, is taxed as net capital gain at the 15% rate.
Still another complication in long-term taxation arrived January 1, 2001, and further complicates 2003 computations. As of that date, lower rates came into effect for gains having a holding period of over 60 months (called the "ultra-long-term rate" here). The rates are 8% if you are in the 15% bracket, 18% otherwise. As of 5/6/2003, this rule was repealed until 2009.