Originally set to expire after 2008, the capital gains rates have been
extended through 2010. In addition, the “zero” tax rates now apply to 2008 through 2010 instead of just 2008.

As part of a 2003 tax package, Congress reduced the preferential tax rates
on capital gains from 10% and 20% to 5% and 15% respectively, with the lower rates applying to taxpayers in the 15% and under tax brackets. The
5% rate will drop to 0%, beginning in 2008. These lower rates apply to both the regular tax and alternative minimum tax (AMT).

Capital gains rates apply to profits from the sale or exchange of capital
assets held longer than one year or that have been inherited. Capital assets include corporate stocks, bonds, unimproved real property, rental property
and taxable gain from the sale of a home. They don’t apply to the portion of gain attributable to depreciation, which is generally taxed at a higher rate.

Zero Tax Rate Planning - With the long-term capital gains rates dropping
to zero in 2008, and continuing through 2010, there is no tax on your long-
term capital gains to the extent your regular tax rate is less than 25%. So depending on your situation, it may be appropriate to put off some of your sales that will result in gains until 2008. But before you make plans to sell everything in 2008 through 2010, remember the gain itself adds to your income, impacts income-based limitations, and possibly pushes you into a higher regular tax bracket, so it is a balancing act to take advantage of this zero rate. Of course, you can also use losses to offset the gains, and contrary to conventional strategy, you should only have enough losses to keep the gain within the zero tax rate.

Caution: Because Congress is concerned that taxpayers might transfer assets to their children to benefit from the zero tax rate, they raised the
Kiddie tax threshold to include full-time students under age 24. See the Kiddie tax article included in this brochure.

Qualified Dividends Extended – The taxation of “qualified” dividends at long-term capital gains rates is also extended through 2010.