Elimination of the 5% cap gains rate in 2008 thru 2010…
Am I correct in saying that the long-term cap gains rate starting in 2008, if in the 10 or 15 percent federal bracket, is zero! For example, if I have $100,000 of long-term capital gains in 2008, then a good portion is taxed at zero percent until I cross into the 25% federal bracket? (then taxed at 15% cap gains rate)
Permalink Submitted by Alan Spross on Thu, 2007-09-20 20:42
Yes. The 5% portion goes away.
But this benefit can also have some costs, eg. the added AGI is still there even for the -0- taxable portion. That reduces any itemized deductions subject to a % AGI limit such as medical and miscellaneous, and could also increase SS taxation for such recipients. Certain tax credits may be negatively affected by the higher AGI also. One of those is the Savers Credit.
And those with large loss carryovers coming into 2008 get no benefit from the -0- rate until all their cap losses have been applied. This changes the equation from harvesting losses to harvesting gains starting now. You would actually want to defer taking more losses until 2011 when they will be more valuable and the cap gains rate may well be higher.
Permalink Submitted by bill weaver on Fri, 2007-09-28 05:19
how does one avoid the dreaded AMT in that situation when a large LTCG is taken along with a modest IRA distribution, it seems that the AMT then kicks in, and removes many of the tax advantages. This would be my first time to do this, and playing with the tax software, it shows having to pay a big chunk of AMT taxes in addition to the regular tax. Is there something different for 2008 that fixes that problem?