Plan Ahead for Zero Capital Gains Taxes

Starting in 2008, the long-term capital gains tax rate for taxpayers in the 10% and 15% tax brackets drops from 5% to zero. The zero tax rate is scheduled to end after 2010, unless Congress changes the law.

Who benefits? For 2008, the 15% bracket will apply to taxable income up to $32,550 for single taxpayers. Married couples filing jointly will be entitled to the 15% rate if 2008 taxable income does not exceed $65,100. Taxpayers with incomes below those levels will find it appealing to sell profitable investments in 2008 through 2010. But what if your tax bracket is higher than 15%? Many adult children regularly provide financial assistance to parents who are in a 10% or 15% tax bracket. Most simply write checks, but a better alternative for those with investment portfolios might be to give mom or dad highly appreciated securities. The parent can sell the stocks in 2008 through 2010, without owing any tax, and the children can use their cash for investment purposes. Here's an idea that can provide for a relative and our future, as well. Fred's mother lives in a retirement community and her taxable income is about $28,000 a year (15% tax bracket). Fred would like to assist his mother and our programs, as well. Fred gives his mother $10,000 in appreciated securities that she then contributes to us in 2008 for a gift annuity. His mother receives a lifetime income, avoids capital gains taxes 100% and receives a charitable deduction, as well.

 

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