Money gurus are always preaching long-term investing. Not only will that give you a better shot at earning more, it'll also get you a lower tax rate when you sell.

In this tax tip: • May is a good month for lower rates   • 5-percent rate   • 15-percent rate   • 25-percent rate   • 28-percent rate   • Five-year rates disappear

But exactly what rate you get depends on several things, including when you bought the asset, when you sold it, your overall income level and sometimes what tax-code changes are made in the meantime.

Currently, capital gains may be taxed at 5 percent, 15 percent, 25 percent or 28 percent or a combination of rates. These tax levels are known as long-term capital gains and apply to assets that you hold for at least 366 days (more than one year). The long-term capital gain tax is, generally, much lower than what you pay on your regular income.

In fact, it is a taxpayer's income level that generally determines which capital gains rate is owed. If your profit pushes you into a higher bracket, you could possibly be taxed at a combination of rates.

And you could face yet another rate depending upon the type of property you sell.

May is a good month for lower rates
For many years, investors whose overall income put them in the top four income-tax brackets faced a long-term capital gains rate of 20 percent, while lower-income investors paid capital gains taxes of 10 percent.

Tax-law changes in May 2003, however, lowered the rates by 5 percent each. Most investors, which generally means folks in the higher income ranges, now find their capital gains taxed at 15 percent. Taxpayers in lower income brackets pay only 5 percent on most investment earnings.

These lower rates were scheduled to end on Dec. 31, 2008.

However, in May 2006, lawmakers agreed to extend this tax break for investors for another two years. Now capital gains and qualified dividends will continue to be taxed at 15 percent (or 5 percent for lower-income taxpayers) through 2010.

Remember, each of these is the long-term capital gains rate. In most cases, that means you have to hold an asset for more than a year before you sell it. If you cash it in sooner, you'll be taxed at the short-term rate, which is the same as your ordinary income tax level, which could be as high as 35 percent.

And while the 5 percent and 10 percent rates have received the most attention, at least on Capitol Hill, for the last few years, there are several other categories of capital gains taxes. Here's a breakdown of all the tax levels.

5-percent rate
This capital gains rate applies to taxpayers in the 10-percent or 15-percent income tax brackets. They will pay a maximum 5-percent long-term gains rate on property held for more than a year.

Lower-income investors get an even better investment sale deal in 2008. That year, these filers will pay no tax on sales of long-term holdings.

The 5-percent rate still applies to a portion of your gains even if your asset sale pushes you into a higher bracket. For example, if, as a single filer, your taxable income was $25,000 but you netted another $7,000 from a long-term stock sale, some of that gain would still be taxed at the lower 5 percent capital gains rate even though technically you were bumped into the 25-percent tax bracket.

In this case, $30,650 (the 2006 income ceiling for the 15-percent bracket) minus your ordinary income of $25,000 gives you a $5,650 capital gains cushion at the 5-percent level. Only the remaining $1,350 of gain would be taxed at the 15-percent rate applicable to your new, higher tax bracket.