You heard right. There's no -- nada, nothing, zilch, zero -- capital gains tax on the sale of assets held for more than a year.

But you might not have heard the full story.

Bob D. Scharin, senior tax analyst from the tax and accounting business of Thomson Reuters, calls the law that took effect Jan. 1, 2008, "the ultimate tax rate reduction." But as is often the case with tax provisions, this modification comes loaded with restrictions.

First, the elimination of capital gains tax applies only to assets owned for more than a year. Short-term sales remain taxed at your ordinary tax rate.

Then there is a monetary cap, as well as a limited time frame to take advantage of the tax break.

And it's not for every investor. Some young investors have been expressly excluded from the zero-percent option. Others, such as Social Security recipients, could find that untaxed capital gains might mean new or additional taxes on their retirement benefits.

So before you rush to your broker to sell all your stocks and mutual funds, check out the new law's finer points and how it might or might not apply to you.

Cashing in on lower capital gains taxes

For tax years 2008, 2009 and 2010, long-term capital gains taxes are eliminated for some low- and moderate-income individuals. This zero-tax break will end Jan. 1, 2011, when all capital gains rates revert to pre-2003 levels, unless Congress extends the current law. Ordinary income tax bracket Long-term capital gains rate by tax year 2007 2008, 2009 and 2010 2011 10 percent 5 percent 0 percent 10 percent 15 percent 5 percent 0 percent 10 percent 25, 28, 33 and 35 percent 15 percent 15 percent 20 percent

Limited to lower incomes
The first, and for most the biggest, hurdle to overcome is the earnings limit. Previously, taxpayers in the 10 percent and 15 percent tax brackets paid 5 percent on long-term capital gains. Now, individuals in the two lowest tax brackets can sell long-term assets and escape any capital gains taxes.

Beginning in 2008, those bracket limits and the potential tax savings by reducing the maximum capital gains rate from 5 percent to zero percent are as follows.

Income limit

While some taxpayers might look at the income limits and presume they can't take advantage of the zero-percent rate, that might not be the case. The reason: The cut-off amounts are taxable income, not the larger adjusted gross income amount.