Capital Gains Tax Decreased. The tax rates have been decreased for long-term capital gains, for tax years that end after May 5, 2003.
Long-term capital gains will be taxed at 5% instead of 10%, and 15% instead of 20%. The 5% rate applies to taxpayers in the 15% or 10% tax bracket and the 15% rate applies to taxpayers who are in the 25% or higher tax bracket.
For the 2008 tax year, the rate will be 0% instead of 5%. The capital gains will still be included in adjusted gross income, but they will be subject to a 0% tax rate. These tax rates apply for alternative minimum tax purposes as well. The 25% and 28% tax rates on unrecaptured Sec. 1250 gains and collectible will be retained. The provisions for 5-year qualified gain (which is taxed at 8% and 18%) are eliminated.
Also, the preference item for Sec. 1202 gains on Sec. 1202 stock acquired after 2000 is reduced from 42% or 28% to 7% of the gain. This rule applies to dispositions of Sec. 1202 stock after May 5, 2003.
However, a transitional rule applies to tax years that include May 6, 2003. Gains that are recognized prior to May 6, 2003, are subject to the 8%, 10%, and 20% rates instead of the 5% and 15% rates.
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