Capital Gains and Dividend Tax Rates

Capital Gains and Dividend Tax Rates

The long-term capital gains tax rate was lowered when former President George W. Bush signed the Jobs and Growth Tax Relief Reconciliation Act of 2003 – from 8 percent to 5 percent at the lowest tier, and from 20 percent to 15 percent at the highest tier. The tax rate on qualified dividends was lowered from the taxpayer's marginal income tax rate to 15 percent. Originally set to expire in 2008, the lower rates were extended to December 31, 2010 by the Tax Increase Prevention and Reconciliation Act of 2005.

For 2008, 2009 and 2010, the tax rate on qualified dividends and long term capital gains is 0 percent for those in the lowest two income brackets.

Unless the Bush tax cuts are renewed by 2011, the long-term capital gains tax rate will once again return to the pre-2003 rates of 20 percent (10 percent for taxpayers in the 15% tax bracket) on most capital gains, and 18 percent (8 percent for taxpayers in the 15% tax bracket) for property purchased in or after 2001 and held for more than five years. Dividends will again be taxed at the taxpayer's ordinary income tax rate.

Given the current low rates and the likelihood of increased rates to come, now might be a good time to talk to us about your specific situation and whether it makes sense to realize gains now or defer them to the future.

Note: The information in this article is meant to raise awareness of the topic addressed and should not be considered tax advice. It is always important to consult a tax planner prior to engaging in actions that may have tax consequences.

For more information on this topic, or to discuss how we can be of help to you, please feel free to contact us, 288-6621.