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Bankrate's 2009 Tax Guide
Investments
Investing wisely is key to your wealth-building strategy. Keeping your gains from the IRS is, too.
 
Capital gains tax rates
A look at the many capital gains rates
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Remember, these rates are for long-term capital gains. 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 and could be as high as 35 percent on 2008 returns.

25 percent capital gains rate
While the 5 percent (now zero percent) and 15 percent rates have received the most attention, at least on Capitol Hill, for the last few years there have been several other categories of capital gains taxes.

A rate of 25 percent applies to part of the gain from selling real estate you depreciated. Basically this keeps you from getting a double tax break. The Internal Revenue Service first wants to recapture some of the tax breaks you've been getting via depreciation throughout the years. You'll have to complete the work sheet in the instructions for Schedule D to figure your gain (and tax rate) for this asset, known as Section 1250 property. More details on this type of holding and its taxation are available in IRS Publication 544, Sales and other Dispositions of Assets.

28 percent capital gains rate
Two categories of capital gains are subject to this rate: small-business stock and collectibles.

If you realized a gain from qualified small-business stock that you held more than five years, you generally can exclude one-half of your gain from income. The remainder is taxed at a 28 percent rate. If you've already hired a tax professional to help you sort out the 25 percent rate on depreciable property, she can help you figure this tax, too. Or you can get the specifics on gains on qualified small business stock in IRS Publication 550, Investment Income and Expenses.

If your gains came from collectibles rather than a business sale, you'll still pay the 28 percent rate. This includes proceeds from the sale of a work of art, antiques, gems, stamps, coins, precious metals and even pricey wine or brandy collections.

More rate changes to come?
Both the 15 percent and zero percent rates are scheduled to be in effect only through 2010. If Congress does not extend them, the rates will return to the prior 20 percent and 10 percent levels.

Given the economy and the new political makeup in Washington, D.C., it is not clear how lawmakers will deal with the lower capital gains rates. They could let them run their course and expire at the end of 2010. But they also could decide to end both rates early or keep just one lower rate but not the other.

With Congress continually tweaking investment tax laws, what's an investor to do? Most financial experts say to take advantage of today's lower rates while they are around and when they fit into your portfolio plans.

But don't forget about the ultimate Dec. 31, 2010, deadline. And definitely keep an eye on federal tax-law writers in the interim.

-- Updated: Jan. 27, 2009
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