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Subject:  Re: 5% Capital Gains Tax Rate Date:  12/26/2004  8:50 AM
Author:  irasmilo Number:  74924 of 127753

I will be selling about $100,000 of highly appreciated stock (the tax basis is $20,000) in 2005, and I would like to take advantage of the 5% capital gains tax rate to the fullest extent possible. What are the criteria I must meet? Can the full $80,000 of capital gains be subject to the 5% CG rate?

It's not possible to give a precise answer without much more information (filing status, exemptions, other income, deductions, etc.), but here's how you can figure it out yourself. Generate a tentative tax return for 2005 (using 2005 tax rules) excluding the capital gain. Compare your taxable income to the tables in the instructions for the 2005 Form 1040-ES to determine the maximum taxable income for the 15% tax bracket. The difference between that number and your pre-gain taxable income is the amount of the gain that will be taxed at 5%. Additional gain will be taxed at 15%. If you want more of the gain taxed at 5%, you will have to lower your taxable income.

You should note that lowering your taxable income to increase the amount of 5%-taxable gain is very foolish (not Foolish). Every dollar you lower your taxable income is a real dollar out of your pocket, for which you will be getting $.10 back in reduced taxes.


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