Capital Gain Tax Rates

Under the Taxpayer Relief Act of 1997, new maximum capital gain tax rates went into effect 1/1/2001. The 20% capital gain rate was lowered to 18%, provided a property is held for more than five years and the purchase/holding period began after 2000. For those in the 15% tax bracket, the 10% capital gain rate was lowered to 8%, provided the property is held for more than five years, regardless of when the purchase/holding period began.

For example, high-income taxpayers who purchase an asset in 2001 or later will qualify for the 18% rate, as long as the asset purchased is held for more than five years.

One important issue you should know is that when you sell a depreciated property, the above capital rates do not apply to the capital gain to the extend of accumulated depreciation expenses on the property. The ordinary regular tax rates apply, assuming the depreciation expense is fully used against other ordinary income each year.

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