Reduced Rates For Capital Gains And Dividends Extended Two Years

Congress reduced the maximum tax rate on most long-term capital gains and qualified dividends to 15% in 2003. These lower rates were scheduled to expire after 2008, the Tax Increase Prevention And Reconciliation Act Of 2005 extends them through 2010. If your capital gain or dividend income would otherwise be taxed in the 10% or 15% tax brackets, your tax rate drops to 5% through 2007, and to zero in 2008 through 2010. This creates a tax incentive for high income taxpayers to give capital gain or dividend paying property to lower income family members (e.g., children) to take advantage of the lower 5% or zero tax rates. For this strategy to work for gifts to children, however, the child must be over age 17 by the end of the tax year to avoid the so-called kiddie tax.

 

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