A "0" percent tax rate on long-term capital gains and most dividends is effective this year through 2010.
The basics on qualifying for the 0% rate: In 2008, a couple with ordinary taxable income of $65,000 or less, or a single filer with ordinary taxable income of $32,500 or less, falls in the 15% income-tax bracket and thus qualifies for tax-free capital gains and dividends.
At first blush, those numbers would seem to exclude many boomer taxpayers. But remember, the key is that those totals are for taxable ordinary income, which is the figure you arrive at after deductions and exemptions.
Consider a boomer couple with a spouse (the sole
wage earner) who makes $90,000 in 2008. Let's say this individual makes contributions of $15,000 to a 401(k). That lowers the couple's taxable income to $75,000. And, let's say this couple takes the standard deduction of $10,900 on their tax return and personal exemptions of $3,500 each. The deduction and exemptions (totaling $17,500) are subtracted from the $75,000 resulting in total taxable income of $57,100.
"This break was created to help the little guy, mostly middle-class people," says Alan Sumutka, a tax accountant and associate professor of accounting at Rider University in Lawrenceville, NJ. "But it can be significant for anyone," he says, especially retirees, who are particularly concerned about preserving wealth.
Source: The Wall Street Journal, May 3, 2008