Capital Gain Rates for 2008

[tonia2021]

Is there any new information regarding the reduction in capital gain rates for 2008? Is this new law going to stay in effect, or is it going to stay the same as 2007?

Also, if a land owner sells land in an installment agreement, with 1/2 in 2007 and 1/2 in 2008, will the second payment (2008) qualify for the cheaper tax rate?

[Luis Mopeo]

TTB, page 6-9: "Beginning in 2008, the 5% maximum rate is reduced to 0% for taxpayers subject to a regular tax rate of 10% or 15%."

The text goes on to say the rates are extended through December 31, 2010.

Also, under Installment Sale Income on page 6-14, "This amount is reported as taxable income each year."

The capital gains are subject to the rate in place in the year the capital gain is reported.

[Bees Knees]

The capital gains rates are not going to stay the same. Political candidates on both sides of the isle are talking about raising the rates.

If you have property to sell, do it now. As to the installment sales method, the minute the law changes, capital gains collected under the installment rate will also increase.

[tonia2021]

Capital Gain Rates

Are you thinking the rates are going to be higher in 2008 than 2007 rates? (I realize this is might be a guess.) Or, are you saying you doubt that the 2008 rates are going to be any lower than they currently are?

[Golden Rocket]

They won't resist...

...the opportunity to fix this glaring omission. Sometimes they will grandfather a date, in an attempt to avoid the appearance of ex post facto, but if they need to, they will throw that out the window as well.

what about the elimination of the estate tax in 2010, and re-emergence in 2011 with a lower exemption? Congress authored this lunacy in 2003, and we all knew that surely they wouldn't be stupid enough to let it stand. Surely they won't, but it is almost 2008 and this is still looming. For what it's worth, I have an 87-year-old mother in a nursing home, whom we could lose in either year. I am executor, and don't have the first clue how to deal with this or what Congress will ultimately do.

This kind of Congressional planning is not only bizarre, it can also be trivial and meaningless. For example, I have had occasion to study the new estimated tax rules stemming from the 2005 and 2007 laws. How many of you are aware that beginning in 2012, if a C corp has a quarterly installment falling in the month of September, they only have to pay 79.5% of what is owed on Sep 15th, and can pay the remaining 20.5% on October 1st? If the installment falls in any other month, there is no such 15 days of grace. Wonder how many corporations are going to call a tax planning session to take advantage of the extra 15 days of cash?

It gets worse. In 2013, a Sep 15th payment can be only 72.5% of the amount due, with the remaining 27.5% due October 1. In 2014, this idiocy stops.

[JohnH]

This idiocy stops in 2014?

I have an uneasy feeling that before long we will look back on this as stability.
The idiocy is on track to get much worse in the coming years.

[Bees Knees]

Are you thinking the rates are going to be higher in 2008 than 2007 rates? (I realize this is might be a guess.) Or, are you saying you doubt that the 2008 rates are going to be any lower than they currently are?

Current law is as follows:

2007 and 2008 rates are the same, except that in 2008, for taxpayers in the 10% or 15% tax bracket, the capital gain and qualified dividend maximum tax rate will be reduced from 5% to 0%. [IRC §1(h)]

Originally the lower rates were to expire in 2009. The Tax Increase Prevention and Reconciliation Act of 2005 extended these rates an additional two years to December 31, 2010. In 2011, both the long-term capital gain and qualified income tax rates will return to the higher rates which existed in 2003 and before.

Future law is anyones guess. My educated guess is 2008 is the last year for the free ride. After that, they go up...

[jimmcg]

Idiocy never stops.

When it comes to politicians the idiocy never stops. It is our job to try and be astute enough to capitalize on and use this idiocy to our clients advantage.

[Roland Slugg]

Governmental accounting gimmick

That strange rule allowing corporations to pay a portion of their September 15th estimated tax installments on October 1st has to do with the federal government's fiscal year which ends on September 30th. Those October 1st payments, if actually paid/received in October, will be counted as a tax receipt in the government's NEW fiscal year.

[joanmcq]

the estate phase out

When the government came out with the cessation of the estate tax in 2010 and the resumption at the old levels in 2011 we called that the 'Throw grandma from the train' act of 2003.

[Golden Rocket]

Revenue Models

Roland, my "other" job is consulting as an interface with govt contractors and DCAA (Defense Contract Audit Agency). What you say is true. It is no coincidence that this goofy complication involves September and October.

Government cost accountants are constantly being inundated with various requirements to perform calculations with the cost and revenue models. A quite common task is to evaluate whether a given change is "revenue-neutral." After numerous re-iterations they finally issue recommendations which meet the criteria and they arrive at calculations sufficient to accomplish whatever their objectives are.

For example, beginning in 2011, estimated tax for a C Corporation whose quarter falls in July, August, or September must pay .25% more for their estimated tax to fall in the safe harbor. I hope you notice the decimal -- this is 1/4 of one percent, not 25 percent.

These models contain assumptions which reach far into the future with virtually no chance of being accurate. But it represents the best they can do at any given time. The whole process can be described as "tweaking" and the results of this falls upon those forced to follow the regulations.

Tax complexity is not the only victim of the September government phenomenon. Many government agencies spend horrific amounts in money in September just so the budget people will not think they can get by with less. If there's any agency worse than NASA, I don't know who it would be. The more descretionary the budget, the more frenzied the spending in September becomes.

[jimmcg]

When the government came out with the cessation of the estate tax in 2010 and the resumption at the old levels in 2011 we called that the 'Throw grandma from the train' act of 2003.

Agree, proper estate planning techniques now include "pulling the plug" in 2010 prior to January 1, 2011.