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Long-term capital gains and dividends
The maximum tax rate on net long-term capital gains
remains at 15 percent. For taxpayers in the 10 percent
or 15 percent tax brackets, net long-term capital gains
are taxed at 5 percent in 2007, and will be tax-free
from 2008 to 2010. To qualify as a long-term capital
gain, the asset must be held for more than one year before selling.
Capital gains on investments held for one year or less
are taxed at regular income tax rates – as high as 35
percent. For collectibles held for more than one year,
the maximum capital gains tax rate is 28 percent.
Qualified
dividend income from a domestic or qualified foreign
company is taxed at a top rate of 15 percent (5 percent
for taxpayers in the 10 percent and 15 percent tax
brackets).
Offset capital gains with losses
Net capital
losses are fully deductible against capital gains. If
your capital losses exceed your capital gains, you can
deduct up to $3,000 in net capital losses.
New "kiddie tax" rules
Investors with
children need to be aware that Congress has increased
the age threshold of dependents subject to the "kiddie
tax." Under the kiddie tax rules, a child’s investment
income over a certain threshold is taxed at the parent’s
tax rate. Before the rule change, the kiddie tax ended
at the age of 14. At that age, the child’s income was
taxed at his or her own rate. Now, however, the kiddie
tax applies until the year the child reaches age 18. For
2007, any net unearned income over $1,700 will be taxed
at parental rates if the child is under age 18.
Beginning in 2008, the kiddie tax will be expanded to
apply to many children under the age of 24.
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Other provisions
This article was provided by the American Institute of Certified Public Accountants (AICPA).
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