Capital Gain and Dividend Tax Shelter for some Retirees

One significant advantage for tax payers in the lowest 2 tax brackets is the elimination of both the long term capital gains tax and qualified dividend tax through 2012. This tax shelter belongs to the 10% and 15% tax brackets in which numerous retired people find themselves.

Long-term capital gains tax - to which the tax break pertains - applies to any investment you are marketing that you've held for at least 1 year. The quantity taxed will be the distinction between the selling price as well as your basis in the item (i.e. what you paid). Short-term capital gains tax price is the same as your ordinary revenue tax rate; it applies to products your promoting after less than a year holding period.

According the table below - based on 2012 tax rates - you can have a fairly healthy income and nonetheless remain in the lowest 2 tax brackets.

So, based on the 2012 tax rate schedule, anybody declaring single with a gross revenue of $45,100 or less will qualify for the 0% capital gains and eligible dividend tax rate while these declaring married declaring jointly (MFJ) might have around $90,000 gross income. This tax break is consequently generously accessible.

Tax Bracket	Filing Status	Highest Taxable Income	Personal Exemption	Standard Deduction	Gross Income
Equal to or less than 15% bracket	MFJ	$70,700	$7,400	$11,900	$90,000
Equal to or less than 15% bracket	Single	$35,350	$3,800	$5,950	$45,100

Anybody that has had a substantial rise in their financial commitment over the years would normally be subject to long-term capital gains tax. To consider advantage of the final year of the money profits tax shelter, he should sell the investment. If he's still interested in possessing on to it, then he can buy it once more. The benefit of this tax technique is to re-established his place with an increased tax basis - to the investment's current worth. So in the future when money gains tax is reapplied, he'll possess a much higher basis in his expense to minimize long term gains taxes.