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Lower tax rates on capital gains and dividends Happy news for investors thanks to the 2003 tax bill. You get tax breaks on both capital gains and on dividends. Capital gains Most investments held more than one year are subject to capital gains tax at a top rate of 15%. If you're in the 10% or 15% tax brackets, you will pay capital gains tax at a rate of 5%, instead of 10%. In addition, that 5% rate is scheduled to drop to zero for 2008. These new rates take effect for assets -- stocks, bonds, real estate and the like -- sold after May 5, 2003. There is a kicker: the new capital gains rate expires on Jan. 1, 2009 -- unless Congress extends the provision. The lower rates apply to most -- but not all -- investments. Among those ineligible are collectibles. Nor do the lower rates apply to gains from the sale of investment real estate to the extent of depreciation deductions previously claimed. Dividends If you get dividend income from U.S. companies and some foreign companies, that will be taxed at the 15% rate as well. It drops to 5% for taxpayers in the 10% and 15% brackets. To get the rate, you must hold the stock for 60 days in the 120-day period that starts 60 days before the stock's dividend rate. The provision applies to all dividend income received starting in 2003 until Jan. 1, 2009. |
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