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Home Tax Rates on Capital Gains and DividendsCapital Gains Under current law, the top tax rate on long-term capital gains is 15 percent. Lower income earners taxed in the 10 percent and 15 percent tax brackets on ordinary income are taxed at 5 percent on long-term capital gains. Their long-term capital gains rate reduces to 0% for 2008 through 2010. There are no changes to the tax rate for short-term capital gains, which continue to be taxed at ordinary income tax rates. Note: Under current law's "sunset" provision, prior law's capital gains rates (10% for lower bracket ordinary income tax taxpayers and 20% for everyone else) will apply beginning in 2011 unless a further extension or new rules are enacted before then. Dividends Qualified dividend income is taxed at a maximum rate of 15 percent under current law. Lower income earners in the 10 percent and 15 percent tax brackets on ordinary income are taxed at 5 percent on their dividend income through 2007 and at 0% for 2008 through 2010. These changes apply to dividends paid by domestic and some qualified foreign companies. Certain types of dividend income, such as those derived from REITs (real estate investment trusts) may not be eligible for the new tax rates. Note: Unless a further extension or new rules are enacted before then, dividends will be taxed at ordinary income rates after December 31, 2010. As always, it's best to consult with a tax professional as to how changes in the tax law affect your own situation. Next: Increased Contribution and Benefit Limits |
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