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Long Term Capital Gains Tax Rates Increase in 2011
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When people talk about the Bush-era tax cuts, they’re usually referring to the Economic Growth and Tax Relief Reconciliation Act of 2001 (EGTRRA) signed by President Bush in June of 2001. Many of the provisions were set to phase in over 9 years but those were accelerated when the Jobs and Growth Tax Relief Reconciliation Act of 2003 (JGTRRA) was signed just two years later. Many of those cuts are set to expire this year, the two big items being income tax rates and capital gains rates.
President Obama has publicly said that he will let the Bush-era capital gains tax cuts expire on schedule this year, so it’s important to know how they will affect your investments.
2010 Capital Gains Tax Rates
Here’s what the rates are this tax year:
| Tax Bracket | Short Term | Long Term |
| 10% | 10% | 0% |
| 15% | 15% | 0% |
| 25% | 25% | 15% |
| 28% | 28% | 15% |
| 33% | 33% | 15% |
| 35% | 35% | 15% |
2011 Capital Gains Tax Rates
One of the changes Bush implemented was an adjustment to the tax brackets themselves. The Economic Growth and Tax Relief Reconciliation Act of 2001 introduced a 10% tax bracket and the brackets themselves were lowered. The 28% bracket was lowered to 25%, the 31% went to 28%, etc. If we assume the pre-cut brackets along with the pre-cut capital gains rates, we have the following:
| Tax Bracket | Short Term | Long Term |
| 15% | 15% | 10% |
| 28% | 28% | 20% |
| 31% | 31% | 20% |
| 36% | 36% | 20% |
| 39.6% | 39.6% | 20% |
As for dividend income, they are set to be taxed as ordinary income in 2011.
It’s almost certain that taxes, especially capital gains taxes, will increase. Even though it’s June, now’s the time to start thinking about what your plans are for the upcoming months. Does it make sense to cash out some winners and save 5% on your capital gains taxes?
(Photo: artemeustra)
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So does this expire Dec 31 or before?
I would think if you have large gains over the past couple of years, or you’re wealthy, it may make sense, if you need the short term cash. If you’re in for the long term and don’t generally carry specific stocks that you plan to trade, then it’s not worth the hassle, since it’s still better to keep the money invested.
I think we may see capital gains taxes tick up a few points on the upper tax brackets (even beyond the 20%) – a lot will depend on what the dems can accomplish before january and whether there’s any reversal in the house/senate. Repubs are likely to run on a “reduced spending, reduced taxes” platforms and should they get control of either house, there will be a bit of a stalemate I would think.
In any event, unless you believe that at some point in the future (1) you’ll be in a low enough bracket to take advantage of the lower cap gains rates, or (2) congress & the prez are going to roll back the gains tax again, I think it makes a lot of sense to take the profits this year and re-invest the after-tax amount at the new basis.
The problem is that people with money will take those capital gains this year and do something with their money to reduce their tax bite in subsequent years. It’s political shortsightedness (surprise, surprise) to get a boost in the fall only to get a possible double dip recession after the elections.
We have to pay back are debts somehow.
This is just the begining. Thank got for Roth IRA’s.
The govt better not change those either!
It is only a matter of time.
Bill Snider
All it takes is for the president to declare a “fiscal emergency” in order to get congress to renege on their promise to not tax roth gains. I will feel sorry for those that get screwed when that time comes.
Another way to screw retirees! Believe me, them that’s got money has got tax lawyers & accountants, too…and they won’t be paying these gouges.
When is it going to stop? We the people are getting gouged worse every year, for trying to better ourselves. We need to stop this madness.