Tax Free Free Investment Gains From 2008 – 2010

tax free investment gains

Just when you think the tax code couldn’t get more complicated, we approach 2010, when a multitude of taxes are waived and taxpayers are given large breaks (e.g. estate taxes repealed in 2010). There is one newer tax provision, however, that I have not heard discussed much at all is very lucrative for middle income investors. For the years 2008, 2009, and 2010, as the tax law stands now, the tax rate on qualified dividends and long-term capital gains will be 0% for taxpayers in the 10% & 15% Federal income tax brackets.

How come no one is talking about this? Granted those of us in lower tax brackets have had a 5% favorable rate for the past few years, so this is not a huge tax s


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17 Responses to Tax Free Free Investment Gains From 2008 – 2010

  1. Jen says:

    How do you know which tax bracket you’re in?

  2. Teri says:

    I was going to tackle this question and decided to do a separate article. I’ll try to answer this question in the next couple of days, since I figure this question would be a big one. Hold on…

  3. mitchell says:

    2006 tax brackets:
    10%: from $0 to $7,550
    15%: from $7,551 to $30,650

  4. Teri says:

    Mitchell – thanks for your help – but that would depend on your filing status for 1. 2 – I don’t think most people really know what their taxable income is. Why I figured a more in-depth answer would be key here.

    Those tax ranges look like for someone filing single. KEep in mind this is your income minus deductions, to get to your taxable income. The numbers mitchell posted pretty much double for married filers but I make more than $60k and am yet WAY far from brushing up against the next tax bracket with all of our deductions. But this is a good start to get an idea where you may be.

  5. mitchell says:

    true, my numbers are basic and don’t encompass the entire picture. just wanted to provide a quick answer for the curious.

    i think a full article would be wonderful.

  6. Debbie says:

    Warning: On your point #3, I think if you re-buy the same thing again right away, you lose the long-term status. You could either buy something else in the same class or wait 31 days (I think).

  7. Teri Newton says:

    Debbie – hmmm – really? I’ll have to look into that. IT seemed to be there would be some catch here. I’ll research that one a bit.

  8. Lisa says:

    Thanks. I recently divorced and my income will be in the right tax bracket. So, I will wait to sell stock shares I got in the divorce settlement to coincide with the 2008-2010 dates.

  9. michele says:

    Would this window time frame be a good time to change a regular IRA ro a Roth IRA? I can’t seem to figure this out on my own. thanks m

  10. Teri says:

    Well, as far as the ROTH IRA thing, it makes no difference.

    When you convert to a ROTH IRA you pay income taxes on the value of the account on the date of conversion. So a good strategy is to sell when the value is lower, and/or when you are in a lower tax bracket. It is just regular income tax in this case, not subject to the capital gains taxes or anything.

    Also, if your income is over $100k you can not convert until 2010. Congress has removed the $100k cap in 2010. Just FYI.

    I’d say just convert now (if you have the taxes saved up – do NOT withhold them from your IRA – it causes penalties and taxes in that case). Sooner is better than later, unless you expect to have a lower tax rate in the near future.

  11. Dede says:

    I am curious about the info you have about there not being any capital gains tax in 2008-2010. I asked a CPA about this because we are trying to stratigize about selling a home we rent out. She told me that this is not a law in effect right now and it may never be enacted. Is she right or are you?

  12. Teri Newton says:

    Well, the law has been enacted, but it is for future years. There is always a chance that it can be changed before 2008, so maybe she wants to wait and avoid too much careful planning until the year actually arrives and the law is still actually in effect. In general I heard though this was a calculated tax break, as most are, and there are no plans right now in the works to repeal it. But tax law is finicky and I think I alluded to that. It is really really hard to do tax planning for the future as tax law is ever changing. I think mostly your CPA is not convinced this is set in stone, and I am not sure I am either. But I still think it is one worth planning for and keeping an eye on.

  13. Barrington Rhys-Danford says:

    RE: Zero Cap-Gain in ’08

    How does the above help anyone?
    A single T/P in 2007 using the
    Standard Deduction and one personal exemption can make
    $40,600 AGI before moving into the 25% bracket. In most parts of the USA that single T/P would need that much to survive leaving nothing to invest for a gain, capital or otherwise. Most investors are
    beyond the 15% bracket, so no help to them.

  14. Paul Deame says:

    My grandson will be 19 in 2008, a full time student,a dependent with $2000 in unearned income and $1500 in earned income.He wants to sell $5000 in long term capital gains at the 0% tax rate because his single parent’s tax rate is in the 10-15% bracket.Do you agree?

  15. Nimesh says:

    I have a tax question. Can I convert my personal property (primary residence) into a rental property and take tax break on the depreciation of the rental property after 2 years of rental? I bought a house for $370K which is now worth $270K. It would be nice if I can take this depreciation. Thanks in advance.

  16. Teri says:

    Paul – yes – that will probably work.

    Nimesh, There are 2 issues here (off the top of my head).

    1 – if you convert it to a rental, the value, I believe, would be when you converted it. So for rental purposes the value would start at the value today. (I think).

    2 – Regardless, you generally do not get to take large tax losses unless you have a large gain to offset it against. Likewise, even if you could finagle a $100k loss, unless you had a $100k gain to offset it (or some large gains) you will only get to take $3k/year loss on your tax return. Might take 30 years.

    When talking abour rental property you are best to talk with a CPA about your individual situation. IT can get very complex.

  17. bill m says:

    do i bonds quailfy?

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