ZERO % capital gain

[dyne]

We should advise our clients in our newsletter or in person that they may be able to reduce
their tax IF they have stock to sell at a long-term capital gain, by selling it during 2008, 2009
or 2010 if they will be subject to the 10% or 15% tax bracket after including the stock sales.
Individuals in the 10% and 15% tax brackets are taxed at a reduced 5% tax rate on long-
term capital gains but for the years 2008, 2009 and 2010 this 5% rate is reduced to zero. It is
possible that the AMT could reduce or eliminate this benefit.

Thanks for correction included above by jimmcg, brad imsdhal and unregistered guest.

[jimmcg]

Last I heard, as currently written, this was effective for 2008, 2009, and 2010. Make sure you also tell your clients that Congress can change this in a heartbeat.

[Unregistered]

thanks for the reminder.

I think that is something our clients should be made aware of.

[dyne]

more about Zero % capital gain

From the material available, the zero % tax rate applies to long-term capital gains realized
AFTER December 31, 2008 and before January 1, 2011, making it effective for tax years
2009 and 2010. For the year 2011 and afterwards the rate returns to 20%.
I am still trying to determine if this will provide ANY tax benefit to those who will be in
a higher tax bracket. Comments?

[Unregistered]

Under TIPRA signed into law May of 2006 zero percent long term capital gains rate for lower tax bracket taxpayers applies to years 2008 thru 2010..... Ref Sec 102 of the Act.

[dyne]

Zero % capital gains

The first reference found in Google quotes The TaxBook of 2005 as saying:
"The 0% rate for taxpayers in the 10% and 15% tax brackets were NOT scheduled
to begin in 2008." Another reference found suggests that the 0% rate does apply to 2008.
It is not clear to me yet. Any comments?

[jimmcg]

As unregistered previously said TIPRA signed into law May of 2006 (Sec 102) updated it. Just Google it and take a look.

[Brad Imsdahl]

The first reference found in Google quotes The TaxBook of 2005 as saying:
"The 0% rate for taxpayers in the 10% and 15% tax brackets were NOT scheduled
to begin in 2008." Another reference found suggests that the 0% rate does apply to 2008.
It is not clear to me yet. Any comments?

You are taking that quote out of context. The sentence prior to that says: “Prior to tax years ending on or after 5/6/2003, the maximum long term capital gain rate was 20% for taxpayers whose regular tax rate is 25% or higher, and 10% for taxpayers in the 10% or 15% tax brackets.” Then it says, “The 0% rate for taxpayers in the 10% and 15% tax brackets was not scheduled to begin in 2008.”

The quote is in reference to the sunset provisions. If allowed to sunset, the 0% capital gains rate would no longer apply, as prior law did not have a provision for the 0% rate to apply in 2008.

In context, the enter quote reads as follows:

http://www.thetaxbook.com/updates_view.asp?ID=50

Capital Gain and Qualified Dividends Maximum Tax Rates

Current law, TheTaxBook™ 2005 Edition, page 6-6: Long term capital gains and qualified dividends are subject to a 15% maximum tax for taxpayers whose regular tax rate is 25% or higher. The maximum rate is 5% for taxpayers in the 10% or 15% tax brackets. Beginning in 2008, the 5% maximum rate is reduced to 0% for taxpayers in the 10% or 15% tax brackets. [IRC §1(h)]

These rules were scheduled to expire for tax years beginning in 2009, and revert back to the rules in effect prior to 5/6/2003. Prior to tax years ending on or after 5/6/2003, the maximum long term capital gain rate was 20% for taxpayers whose regular tax rate is 25% or higher, and 10% for taxpayers in the 10% or 15% tax brackets. The 0% rate for taxpayers in the 10% and 15% tax brackets was not scheduled to begin in 2008. Qualified dividends were subject to ordinary tax rates.

New law, Section 102 of the Tax Increase Prevention and Reconciliation Act of 2005: The 15%, 5% and 0% tax rates for long term capital gains and qualified dividends is extended 2 years through December 31, 2010. The rates do not revert to pre-5/6/2003 levels until the 2011 tax year.

[RLymanC]

Cap Gains Question

Are the LT Gains on the sale of rental property included in this law. Somewhere I heard that the sales of commercial property is not included. My thinking is LT gain is LT gain.

[Brad Imsdahl]

Are the LT Gains on the sale of rental property included in this law. Somewhere I heard tnat the slaes of commercial property is not included. My thinking is LT gain is LT gain.

LT gain is LT gain. However, the Unrecaptured Section 1250 gain taxed at 25% still applies. Thus, much of your gain on the sale of rental property is still going to be subject to the 25% rate.