Re: cap gains rates?
Tim May wrote:
> > (Dave) writes:
> >
> > >1) What are the capital gains rates for the different income
> > >brackets? Please define what the numbers of the income brackets are.
> >
> Phil The bracket boundaries vary by filing status. For the 1998 income tax
> > brackets, see Form 1040 ES. Short-term cap gains are taxed as ordinary
> income. > Long-term cap gains are taxed at 10% if you're in the 15%
>bracket,
> otherwise at 20%.
>
> I've been seeking confirmation of exactly this point, just mentioned here,
> for several days. A friend of mine has a CPA sister, who claims that a
> little-known provision of the new tax code has this "10% capital gains
> rate if ordinary income is in 15% bracket" provision.
>
> Can anyone cite a URL or actual document name that spells this out?
Tax Reform Act of 1997. Code Sec. 1
> Is this only for _estimated_ taxes, or is the "final rate" this 10% figure?
final rate
> It seems dubious to me that Congress would allow someone with a paltry
> ordinary income, e.g., $20,000, to then only pay 10% on capital gains of,
> say, $500,000. Is there some way that high capital gains get imputed as
> ordinary income, to defeat this?
Not the way it works. Law says: to extent the 15% bracket (25K if single, 40K
married jointly) isn't filled by ordinanry income, capital gain falling in
that
bracket is taxed at 10%.
Example: Ordinary income $20K, Cap Gain $500K, single. Ordinary income taxed
at
15%, $5K of capital gain taxed at 10%, balance of capital gain taxed at 20%.
> (And I know several of my friends, including me, who have very low
> ordinary income but potentially very large capital gains. If this 10%
> capital gains thing is real, a lot of us will be very happy. My tax
> advisor has not heard about it, by the way, but he says he'll look into
> what the new tax reform proposes.)
Capital gains is the biggest tax break around for the very high income (over
$200 K
per year) one percent of the population. If you're in this group, sounds like
you
may need a new tax adviser. P.S. If the capital gains are from stock options,
find
an advisor who knows what "AMT" is.
'Gwailo
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