Submit your questions to Steve at:firstname.lastname@example.org Q: I have seen several references to a zero tax rate on long-term capital gains for those having an adjusted gross income of less than $62,100, for tax years 2008 through 2010. If true, this could have a significant effect for those who have kept their stocks that took such a whipping in the bursting of the tech bubble. Can you verify this?
A: Everybody's tax situation is different, so Thomas Mayper, executive vice president of RDM Financial Group in Westport, Conn., suggests that you check with your tax adviser to see whether you will qualify for these important breaks.
That said, here's how his office interprets this regulation:
From 2008 to 2010 there will be zero tax on long-term capital gains for individuals who fall into 10 percent or 15 percent ordinary income tax brackets. For 2008, the 15 percent bracket applies to taxable income of up to $65,100 for married couples filing jointly, $32,550 for single filers. The zero tax rates will apply only up to the point where the taxpayer's income (including the capital gain) remains under that threshold. Realized gains above that level will still be taxed at 15 percent. As it stands now, this provision is scheduled to sunset, along with many other tax cuts, after 2010.
For investors who meet the criteria, however, there is a window of opportunity at least in 2008 to sell appreciated positions and not have to pay any tax. People who wish to take advantage of this rule should make a special effort to know what their taxable income (gross income from all sources less adjustments, exemptions, and deductions) will be, so that they can both maximize their benefit under the statute and avoid being taxed unexpectedly on gains that exceed the threshold.
They should also be careful about realizing losses: Those losses might be wasted if they are used to offset gains that would not have been taxed anyway.
The zero tax rate applies to qualified dividend income as well as long-term gains (a holding period of one year or more). Ordinary income-tax rates still apply for short-term gains. Not all types of capital gains are eligible. The zero tax rates do not apply to gains on real estate, collectibles, or certain small-business transactions.