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What are the capital gain tax rates?Are you considering selling an investment and worried about the capital gains tax? Generally (for individuals), if you have held the asset for less than 12 months, then any capital gain will be taxed as ordinary income (that is, the gain will be taxed at your applicable income tax rate). However, if you have held an asset for 12 months or more, then any capital gain will be taxed as a capital gain at a reduced rate. If you are in the 15% tax bracket, then your capital gains are taxed at 10%. If you are in a higher bracket (such as 28%) then your capital gains are taxed at only 20%. Beginning with this year (2001), however, there is a new long-term capital gain category: assets held 5 or more years. Capital gains on assets in this new category will be taxed at a further reduced rate of either 8% (for those in the 15% and new 10% brackets) or 18% (for all others). However, the 5 year holding period is calculated differently based on your marginal income tax rate. Those in the 28% or higher income tax brackets can only use the 5 year holding period (i.e., the 18% capital gains tax rate) for assets they acquire after 2000. Those in the 10% and 15% brackets can use the 5 year holding period (and the 8% capital gains tax rate) for any assets. Further, beginning in May of 2003, there is a new/temporary capital gains rate in effect. Long-term capital gains through December 31, 2008 will be taxed at 5% for investors in the 10% or 15% rate brackets. Investors in higher tax brackets will have their long-term capital gains taxed at a maximum of 15%. Additionally, certain qualified dividends will be taxed the same as long-term capital gains. Our "C" or regular corporation clients are not so lucky: they get no maximum capital gain rate (except, potentially, with respect to the alternative minimum tax). Of course, an individual investor in a "C" corporation still gets the benefit of reduced capital gains tax rates. The "C" corporation, however, does not receive preferential tax rates with respect to corporate level capital gains. If a "C" corporation sells appreciated property, the gain is taxed at ordinary income tax rates. Certain restrictions, conditions, and exceptions may apply. Contact us for details. |
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