Q:

Subject: 2008 Long Term Capital Gain

I understand that the 2008 LT CG tax rate for filers in the 10 % 15% bracket is to be 0% on the LT CG.

Assume the following:
Filing status Married, filing jointly
Taxable income of $30,000 (before LT CG)
LT CG (held over 15 years) $700,000

Is the entire $700,000 LTCG at 0% tax

             OR

is it just the amount from $30,000 up to the (approx) $62,000 taxed at 0%, then at the 15% rate for LTCG for filers in the brackets above 15%

If the filer could arrange to keep their 2008 taxable income in the 10 or 15% bracket(before LT CG) this would seem to be an outstanding opportunity to sell highly appreciated capital assets in 2008.

OR, am I missing the real facts here?

A:

It is a common misconception that the special low tax rates for LTCGs apply to the full amount of gain.  A you can see in the Schedule D tax worksheet, that isn't the case.  The various tax rates are applied sequentially, to the income in the different lower tax rate brackets.

In their divine wisdom, and as part of their smoke and mirrors style of budgeting, our imperial rulers in DC have given a special deal for only 2008 LTCGs, where the gain that would normally be subject to a 5% rate will be given a zero percent rate.  This means that you would use the worksheet and substitute 0% wherever it shows 5%.  The thresholds would also need to be adjusted for guesstimated inflation over the next few years. 

It's always possible that this one year special deal will be either repealed or even extended.  it is difficult to predict what our rulers will do.

Assuming it is in place when 2008 rolls around,  the best way to really exploit this break would be to do what you can to get your non-LTCG taxable income as low as possible.  A good professional tax advisor can help you with the many ways in which to accomplish this.

I hope this clears up your confusion.

Good luck.

Kerry Kerstetter

 

- posted by Kerry M. Kerstetter, MBA~CPA~ATP~ATA @ 4/28/2006 01:38:00 PM Send this post: