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Capitol gain rate can rise above zero

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in Small Business Tax

Q. Please clarify the 0% capital gain rules for 2008. I’m in the 15% tax bracket. If I have a $1 million capital gain this year, is it all tax-free? C.D., Mount Vernon, NY

A. No. For federal income-tax purposes, the capital gains rate—which was reduced to 0% for 2008—applies to the extent that net long-term capital gain would be taxed at the 10% or 15% rate as ordinary income. The capital gain is stacked on top of your ordinary income to see how much of the capital gain is taxed at 0%. Thus, the great bulk of a $1 million, long-term capital gain would be taxed at the maximum 15% rate.

Tip: You also must consider the tax ramifications of realizing capital gains on the state income-tax level.

 

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