Capital Gains and Dividend taxes

Added on 4/19/07

Several years ago, Congress reduced the taxes on long-term capital gains and dividends. For taxpayers in the 15% tax bracket the rate is 5%; for all others it is 15%. While this special tax rate is set to expire in a few years, in 2008, the tax rate on dividends and long-term capital gains will be zero for those taxpayers that are in the 15% tax bracket.

Long-term capital gains are gains from the sale of assets held for 1 year or longer. Since most taxpayers are in the 15% tax bracket, 2008 is a good year for those taxpayers to sell an appreciated asset that they have been thinking of selling. The reason is obvious – no tax will be due on the gain from the sale of that asset in 2008.

Some of the assets that one might consider selling would be mutual funds and securities with a large capital gain. If you would like to keep the mutual fund or security, consider selling the asset in 2008 and then immediately repurchasing the security. Since the sale results in a profit, the wash sale rules do not apply and the accumulated profit is taxed, but at zero percent. By repurchasing the security, the new tax cost is now the present market value.

Pennsylvania will tax your gains at their tax rate, which is presently 3.07%.