2008 capital gains

[DonPriebe]

It's been extended thru 2010

The first Google hit says ...

Pursuant to the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) and extended by the Tax Increase Prevention and Reconciliation Act of 2005 (TIPRA), the 5% rate drops to 0% from 2008 to 2010.

http://www.nysscpa.org/cpajournal/2006/1206/essentials/p40.htm

[Roland Slugg]

0% extended to 2009 and 2010?

It has always been my understanding that the special 5% capital gains rate would be reduced to 0% only for the single year 2008, and that the former 10%/20% capital gains rates would return for years beginning after 12/31/2008.

Has my understanding always been incorrect, or was there a recent change extending that 0% rate for two additional years?

[George Boutwell]

But the $1.89 gallon of gas back in 2003 costs $3.25 today.

In terms of the dollar, that's a 72% increase. Meanwhile, The Euro 1.76 gallon of gas back in 2003 today costs Euro 2.41 -- an increase of 37%. Which do you prefer?

Back in 2000, Saddam Hussein decided to peg the price of Iraqi oil to the Euro, not the dollar. No wonder we didn't like him.

[Bees Knees]

The bottle of California zinfandel that cost $10 in March 2003 still costs about $10, because there has been little inflation in domestic wine prices.

But the bottle of French pinot noir that cost $10.70 (10 Euros) in March 2003 today costs about $13.50 (10 Euros), a 26% increase in about four years because of dollar devaluation.

The same could be said about inflation. The $10 bottle of wine back in 2003 is still worth $10 today. But the $1.89 gallon of gas back in 2003 costs $3.25 today.

Inflation is not across the board. Neither is currency exchange. It's all more of the same.

[George Boutwell]

what is the difference between dollar devaluation and inflation?

The bottle of California zinfandel that cost $10 in March 2003 still costs about $10, because there has been little inflation in domestic wine prices.

But the bottle of French pinot noir that cost $10.70 (10 Euros) in March 2003 today costs about $13.50 (10 Euros), a 26% increase in about four years because of dollar devaluation.

Put another way: a $100 bill stashed away in 2003 is still worth $100, regardless of inflation or deflation. But a $100 bill stashed away in 2003, worth 93.45 Euros back then, is today worth 74.07 Euros.

[Bees Knees]

In fact, I now think I could have said that there are only two risks: diminished purchasing power of each dollar; and having fewer dollars.

Or one risk: not having enough moola to play golf when you retire...

[erchess]

I am not an economist

You left out the fourth risk, which lately has cost more Americans with assets pegged to our third-world currency more than the other three combined: Dollar devaluation.

but what is the difference between dollar devaluation and inflation? Either way, it is possible to have the same number of dollars that you had ten years ago and yet have significantly less ability to buy stuff.

In fact, I now think I could have said that there are only two risks: diminished purchasing power of each dollar; and having fewer dollars.

[bigdadder]

Offer financial advice

"I will also not be caught dead offering financial advice for compensation of any kind."

I agree completely. Almost every time advice is taken out of proper perspective.. People have very short term natures and view investmests the same way. Broad scope discussions with clients making own decisions is the only to go.

[George Boutwell]

as someone attempts to accumulate wealth, there are broadly speaking only three risks.

You left out the fourth risk, which lately has cost more Americans with assets pegged to our third-world currency more than the other three combined: Dollar devaluation.

[erchess]

I am not a financial planner but....

as someone attempts to accumulate wealth, there are broadly speaking only three risks. Purchasing power can be lost to inflation. (Who says that twenty years from now a million dollar a year income for a single person will be above the poverty line?) Funds can be invested in things that lose some or all of their market value. (Does anyone remember what happened to IBM Stock in the 80s and 90s? For that matter does anyone remember Enron?) And funds can be taken by thief who may or may not work for the government. (Social Security was going to be tax free but that changed. Who is to say that Roth withdrawals will remain tax free?) So what's a body to do? Here are my personal policies.

For as long as I live, half of my long term investments will be in equities and tangible property. That is because the risk I fear most is inflation. Precious metals do well in times of ruinous inflation and only equities grow faster than the rate of inflation. Real estate is normally a good investment but most markets are depressed at the moment and I do not know whether we have seen the bottom. I will also have up to half of my of my investments in short, intermediate, and long term bonds and of course cash and cash equivalents. I will also not be caught dead offering financial advice for compensation of any kind.

[DonPriebe]

Gold star

Correct!

(Did you know that a reply must be at least 10 characters long?)

[Kram BergGold]

? for Don Preibe

I have taken a look at how this works. It seems to me, if in your example the single taxpayer had $30,000 of ordinary income and $70,000 of cap gains the savings from the zero percent bracket would only be $455 (5% of $9,100). Do you agree?

[George Boutwell]

What I am suggesting is the building of property OUTSIDE of a deferred account

In other words, build something that is worth $70 but cost $100 because after-tax dollars were used. And then pay tax every year on the income it produces.

Right. That makes sense. I get it now.

[Corduroy Frog]

Free Investment

I hope I haven't been misunderstood.

What I am suggesting is the building of property OUTSIDE of a deferred account, for the reasons I listed. The objective is the replacement of ordinary income (retirement distributions) with favored LTCG rates (non-administered investments).

If anyone thought I was recommending high-risk stocks where losses are wasted, I would be every bit as stupid as Jainen thinks I am. That's OK -- I wanted to float the idea and see what everyone thought...

[George Boutwell]

As the Frog points out, it doesn't make sense to risk stock losses inside an IRA, especially without the tax benefit.

It doesn't make sense to risk stock losses inside an IRA, IF the objective is long-term capital gains. But I have a client whose IRA is yielding 20% annual return by writing covered calls on (mostly) blue chip stocks. The transactions are kept off Schedule D, where they would be taxable as ordinary income anyway.