In 2008, 2009, and 2010, the tax rate on eligible dividends and long term capital gains is 0% for those in the 10% and 15% income tax brackets. The long term capital gains tax rate is still 15% for income earned in the 25% tax bracket and higher.
- dividends will be taxed at the taxpayer’s ordinary income tax rate, regardless of his or her tax bracket.
- the long-term capital gains tax rate will be 20% (10% for taxpayers in the 15% tax bracket).
- the qualified five-year 18% capital gains rate (8% for taxpayers in the 15% tax bracket) will be reinstated.
Before these changes take place, Congress could always enact legislation to change the tax landscape. Until then, there is plenty of time to adapt your investment strategy to minimize the effect of these changes.