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CAPITAL GAINSOne of the biggest impacts of the recent tax revision was a change in the way capital gains are taxed. Capital gains can arise when you sell a “capital asset” at a profit. For most individuals, the largest single capital asset they own is their home. But capital assets also include investments such as stocks and bonds, and collectibles such as artwork, stamps, or coins. Under the new rules, the tax you will owe depends on the type of asset and the time you have held it. Here is a summary of the new rules and some tax planning pointers. Investments and other assets
Your capital gains on most other capital assets, such as stocks and bonds, investment real estate, and noncorporate business assets, will be taxed at a variety of rates as shown in the table. The rate you will pay depends on your personal tax bracket, the type of asset, and the holding period. Gains on assets held 12 months or less are generally taxed as ordinary income at your regular tax rates. Favorable rates apply to most assets held more than 12 months. Sales of these assets are taxed at 20% if you are in the upper brackets and at 10% if you are in the 15% bracket for regular income. The favorable rates do not apply to collectibles, such as works of art, rugs, antiques, jewelry, and stamps. Also, special rates may apply if you sell depreciated real estate, and special rules apply to the sale of certain small business stock. Note that the new rules apply to individuals, estates, and trusts, but not to corporations. Beginning in 2001, the 20% rate drops to 18% for assets purchased after December 31,2000, and held for more than five years. For lowest bracket taxpayers, the 10% rate will drop to 8% for assets sold after December 31, 2000. Capital Gain Rates
(A) Rate decreases to 18% for assets purchased after December 31, 2000 and held for five years. (B) Rate decreases to 8% for assets purchased after December 31, 2000 and held for at least five years. NOTE: Special rules also apply to qualified small business stock held more than five years and to long-term capital gains on depreciated real estate. | |||||||||||||||||||||||||||
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