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Investopedia explains 'Breakeven Tax Rate'
An example of a break even tax rate is illustrated in the following example:
Investor A owns 1,000 shares of stock in ABC Company, and the price is starting to decline. He originally paid $25 per share for the entire lot, and the stock is now trading at about $100 per share.
However, a major financial crisis has hit the company, and the share price is starting to fall rapidly. The investor has held the shares for nearly a year, which means that he can either sell them now and pay tax on his gain as ordinary income, or wait for the one-year holding period date and then sell and pay tax at the lower capital gains rate.
But of course, paying a higher rate on stock sold at $75 per share is probably better than waiting for the stock to fall to $50 per share and then paying a lower rate on less gain.
Of course, the movement of the stock price will ultimately determine which path is better, but there will be a stock price at which the investor will come out the same either way, regardless of whether he reports a short or long-term gain.
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