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Zero capital gains tax rate set to disappear on Jan. 1, 2013

November 15, 2012

During the Occupy Wall Street movement's heyday and recent presidential campaign, we all became very familiar with how the wealthiest 1 percent of Americans got that way. They tend to let their money work for them via investments.

In addition to packing their portfolios with assets that grow in value, they sell at the right time and then they pay lower taxes on their profits thanks to the capital gains tax rules and rates.

Old stock certificates by J Money via Flickr Creative Commons Old stock certificates photo courtesy J. Money via Flickr

Sell an asset that you've held for more than a year and it is classified as a long-term capital gain. That then makes the profit on the sale eligible for the lower capital gains tax rate.

For folks in the current 25, 28, 33 and 35 percent tax brackets, the capital gains tax rate is 15 percent. That's in effect through Dec. 31. Unless Congress and the president take action, it will go to 20 percent in 2013.

But folks in today's 10 and 15 percent tax brackets get an even better deal. They don't owe any taxes on their capital gains.

You heard/read right. Folks in the two lowest tax brackets owe no tax — nada, nothing, zilch, zero — on their capital gains.

Again, as with the 15 percent tax rate, the 0 percent tax rate is good only through 2012. On Jan. 1, 2013, without legislative action it will jump to 10 percent.

How investors can benefit from the 0 capital gains tax rate and its potential disappearance if the Bush-era tax cuts expire (and the country falls off the fiscal cliff) is the latest Weekly Tax Tip.

Of course, as with all special tax rates such as that which applies to capital gains, much additional calculating is required. Yet another reason to hire a tax professional or at least use tax software.

But regardless of whether you'll face no capital gains tax on your asset sales or the 15 percent rate, look into making investment moves by Dec. 31 if you expect the rates to increase come January.

And if you're blessed with the predictive ability to know what might happen on Capitol Hill, drop me a note. I could use some stock (and lottery number) picking tips!

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The More Tax Posts tab at the top of this page will take you to, well, more tax posts. You also can search below for a tax topic. 

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TAX-SAVVY WAYS 
TO WRAP UP 2026

It’s over! With October’s extended filing deadline behind us, it is now time to focus on year-end moves to reduce your 2026 tax bill. 

You’ll find ways to do just that on the Tax Tips page (see the More Tax Posts drop-down menu at the top of the blog), as well as the separate tax tip pages for each month, notably October through December. If you’re on the Tax Tips page, you’ll find a monthly list at the end of this column. If you’re on another blog page, you can head straight to the October tips; at the bottom of that tips page you’ll find links to all the other 11 months’ collections of tax advice.

Not to spoil what you’ll find in that tax advice, but it does cover such things as tax deductions for charitable donations, investment moves that could reduce tax due, and ways to max out your tax-favored retirement savings. 

Finally, as the year winds down, things get hectic. There are lots of other things to occupy our time, like the much more fun upcoming holidays. But don’t lose sight of taxes, since timing is key. To be of use, most tax moves must be made by the end of the tax year. That’s Thursday, Dec. 31, which also is the last business day of the year. 

So that you don’t miss that final tax year deadline, also keep an eye on the countdown clock below. It will keep you on top of just how much time is left to make important, tax-saving moves. (Note: I’m in the Central Time Zone, so adjust accordingly for where you live.)

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