Capital Gains Tax Rates

Does anybody have to worry about taxes on capital gains right now? It seems most are worrying about capital losses. However, with the market so low compared to where it was last summer there is a decent chance that people who are currently investing (and likely buying low) will have reason to consider capital gains tax rates before they sell their investments in the future.

(Note, this assumes investments, such as mutual funds and stocks. Other types, such as real estate, have slightly different rates.)

2009 Capital Gains Tax Rates

Time Held
Tax Bracket
35%
33%
28%
25%
15%
10%
< 1 year (short-term)
35%
33%
28%
25%
15%
10%
> 1 year (long-term)
15%
15%
15%
15%
0%
0%

Basically, you pay your regular income tax rate, if you sell the the investment within a year of buying it. If you wait at least one year from the date of purchase, your tax rate drops significantly.

However, the law regarding these tax rates is set to end after 2010. At which time the tax rates would return to what they were up to 2003, which also includes a slightly lower rate for holding investments more than five years.

2011 Capital Gains Tax Rates

Time Held
Tax Bracket
35%
33%
28%
25%
15%
10%
< 1 year (short-term)
35%
33%
28%
25%
15%
10%
> 1 and < 5 years (long-term)
20%
20%
20%
20%
10%
10%
> 5 years (long-term)
18%
18%
18%
18%
8%
8%

Let’s hope that Congress votes to keep the rates low—better yet, let’s encourage them to do so.

That’s my two bits. What are yours?

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Posted on April 22nd, 2009