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Zero Percent Capital Gains
Old 12-04-2007, 09:41 PM   #1
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Zero Percent Capital Gains

For the coming year of 2008 through the year 2010 the capital gain tax rate will be zero percent. How are you strategizing to take advantage of this favorable situation?

Selling a $20,000 investment, purchased five years earlier for only $10,000, and paying no capital gains tax at all?

This will become reality for middle-income investors beginning in 2008 and will last for three years when a seldom-discussed provision of the recent tax cuts takes effect, providing middle-income investors with a can't-miss tax-planning opportunity.

After about $65,000 in adjusted gross you will start paying 15% But it will still be nice.

"Quite possibly some of our $80,000- to $100,000-income, married people might qualify, if they have enough deductions on Schedule A to get them under the joint $65,100 threshold. With enough mortgage interest and charitable deductions - and even the standard deduction and personal exemptions totaling $17,900 - that $65,100 isn't so hard to make for the average Joe.

And, quite possibly, people looking to retire at year's end and those who have options in how to take their retirement income - especially those who have "big wealth" in an individual stock - may be able to benefit. High-income earners need not look any further - at least of course, if you have parents in this category from whom you might inherit such money."

Let's say you are retiring and can delay your pension, have little or no other taxable income, and can use the tax laws to liquidate $200,000 worth of stock, which has a gain of roughly $80,000. Your income will come from the $200,000 in stock liquidation, but your taxes are based on your taxable income - the gain in the stock less deductions and personal exemptions. Do that for the three years the IRS allows you to, and you just saved about $36,000 in taxes and have diversified your holdings a bit.

boont
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Old 12-04-2007, 10:26 PM   #2
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I am counting on it deferring tax deductible expenses to next year so I can get more long term capital gains free.
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Old 12-04-2007, 10:30 PM   #3
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Originally Posted by boont View Post
For the coming year of 2008 through the year 2010 the capital gain tax rate will be zero percent.
You strongly imply that you know this in the rest of your post,
but just for the record ...

It will be zero percent for long-term capital gains that fall in
the 10% and 15% taxable-income brackets.
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Old 12-04-2007, 11:18 PM   #4
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I understood it was to the top of the 15% bracket. I was going to pay my Jan 1 mortgage payment in December but will wait so it increases my deductions in 2008 instead of 2007. I might do a IRA instead of a ROTH too. I think they might cancel the last two years when we get a new president so trying to get as much as I can in 2008.
Most of us low income people don't have a lot of long term gains and they are only 5% anyhow but every little bit helps.
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Old 12-04-2007, 11:31 PM   #5
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Anyone contemplating this should be aware that it is likely to force computation of the Alternative Minimum Tax. Whether or not additional AMT is owed will depend on other factors.

I definitely plan to take advantage of this window of opportunity as long as it is open. - 2008 through 2010 if the tax law is not changed. I have been working to arrange as low an ordinary taxable income as possible for those years. I should be able to realize a significant amount per year in long term capital gains and qualified dividends tax free. I will churn my appreciated taxable assets enough to generate that tax free amount of realized gains.
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Old 12-04-2007, 11:55 PM   #6
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Some details on how the "zero" bracket for gains works for years 2008-2010:

2008 drop in capital gains rate won't be for everyone - USATODAY.com

Just remember, the amount of capital gains themselves help determine which tax bracket one falls in, and therefore whether or not one qualifies at all for the "zero" rate on capital gains instead of the 15% rate.
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Old 12-05-2007, 08:08 AM   #7
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Anyone contemplating this should be aware that it is likely to force computation of the Alternative Minimum Tax. Whether or not additional AMT is owed will depend on other factors.

Yeah, the AMT makes it hard to figure out your planning. For example, should you delay a deduction or two until next year, for example, by paying estimated taxes late or property taxes late and moving them into next year? What if you hit AMT and then lose the benefit of the deduction? Yuck. And we don't know what kind of AMT exemption we are going to have next year. Or even this year.
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