Before we go into the new rules, let's review current law. If you hold a stock for 12 months or less, any gain is considered short-term and taxed at your ordinary tax rate (the same rate at which your other income — salary, for example — is taxed).

Gains on investments you sell after holding them for more than one year are generally taxed at a more favorable capital gains rate.

Starting in 2001, however, a third tier is added to the capital gains rates — namely, investments held for longer than five years. But, as you would expect, the rules get complicated. So bear with us...

If you are in the 15% income tax bracket, capital gains rates drop to 8% from 10% for assets held at least five years and sold after December 31, 2000.

If you're in a higher tax bracket, the rates drop to 18% from 20%, but only for assets held at least five years and purchased after December 31, 2000.

If you're in the lowest bracket, starting this year you can immediately take advantage of the new rates for any stock you've already held more than five years. But other taxpayers will have to wait five years before seeing any benefits.

Look at the stocks you already have. Those you didn't purchase on or after January 1, 2001, won't be eligible for the lower rate even if you hold them for more than five years.

If you sold and repurchased the stock by the cut-off date, you could then treat it as potential five-year property. But then you'd run into the problems of market risk and extra commissions.

The new law, however, allows you to treat stock you currently hold as having been sold on January 1, 2001, and then repurchased, without actually having sold a thing. You just have to recognize any gain (you don't get to recognize loss).

Remember, though, that all you stand to gain is a 2 percent capital gains advantage five years down the road — and you will have to pay tax on current gain now. So such a maneuver only makes sense if the current gain is relatively low and you anticipate holding the stock for a long time, with a potentially large gain.

If you're in the 15% bracket, look closely at the holding periods on your stocks. When they're closing in on the five-year mark, take the lower capital gains rate into consideration before selling. As time goes on, this decision will become more relevant for higher-bracket taxpayers.