Doubled educaiton credits for Students in midwest disaster states.

0% tax on Long Term Capital Gains
For low and many middle income taxpayers
By: Richard Schneider

A major tax law passed in 2003, and extended in 2005, contained provisions that set 0% tax for most long term capital gains and qualified dividends, for taxpayers in the 15% bracket or below.
The 0% applies for 2008, 2009, and 2010. This is an opportunity that may never happen again. The problem for most taxpayers is their investments have diminished in value, and if sold now would generate a loss. There are at least three situations that come to mind where you may benefit. But first let’s see what the qualifying income levels are.
Your adjusted gross income must be below $83,000, for a married couple, and $41,500 for a single, including the capital gain. You may add $3,500 for each dependent child. Seniors receiving social security, include 85% of your SS benefits in computing your total income and increase the limit by about $1,000 if you are age 65 or over.
Now the three situations that do come to mind are 1. Stock purchased many years ago, such as Fastenal Stock that is still above its original cost, 2. Purchasing stock or mutual funds in this down turn, and holding on to it for over one year and it goes up, and 3. Dependent children may be holding investments.
Stock purchased many years ago, such as Fastenal Stock may have a basis of say $4 per share and is now selling at $36 per share. You could sell the stock, take the $32 per share gain, pay no tax if you are below the income limits, repurchase the stock the same day, and now be holding the stock with an increased basis of $36. Another case may be stock received as a gift, which had a low basis, because grandma or your parents purchased the stock say twenty years ago.
The second opportunity occurs because the 0% window runs for 3 years, and to qualify, you need to hold the investment only 12 months or more. You purchase now at a low price, in hopes that it will go up after 12 months but before the end of 2010, if so, you sell at a nice tax free gain.
Stock or other investments may have been given to dependent children, and if the stock or other investment’s market value is above the basis, this would be an opportunity to report a tax free gain, and increase the basis of the stock. The children may not be used as a dependent deduction in the year this is done. The assumption is the child’s tax bracket would be 15% or lower including the capital gain.
Each taxpayer’s situation is unique and you should consult a professional who is familiar with your tax situation. Also a word of caution, congress with the president could change the tax law in 2009 and/or 2010, eliminating this opportunity, so 2008 is the only sure year for this tax benefit.