Temporary Capital Gains Tax Break Can Help Seniors

Over the next two years, seniors can take advantage of a significant capital gains tax break. From 2008 to 2010, taxpayers in the 10 and 15 percent tax brackets will pay zero percent in capital gains taxes. This means individuals in those tax brackets (the lowest two brackets) will be able to sell real esate, stocks and bonds, and other assets without paying any capital gains taxes. 26 U.S.C. Sec. 1(h);1(d) 1(g) 112.

This temporary tax break can be extremely useful for retirees, semi-retirees, and low-income seniors. Other potential beneficiaries of this zero percent tax include parents, children, and certain U. S. service members. With proper planning these taxpayers can generate income, implement various asset protection and asset management strategies, or satisfy gift and income shifting objectives at no tax cost. 

This capital gains tax cut can significantly benefit the following people:

– Adult children who support low-income parents, or seniors helping out adult children who fall into the 10 or 15 percent tax brackets. Instead of giving cash, you can give stocks and bonds instead, and if the parents or adult children sell the stocks and bonds between 2008 and 2010, they will not pay a capital gains tax on the proceeds.

– Retirees with investments in taxable accounts. Tax-deferred retirement savings plans are not affected by capital gains. But if you are a retiree with stocks or mutual funds in a taxable account, you can sell without incurring a capital gains tax. If you are planning on retiring this year, you may want to sell taxable investments and delay Social Security payments or distributions from a tax-deferred plan.

Be careful. There are some potential downsides to selling off investments, so you need to be sure it is the right step for you. Before you take any action, be sure to consult both an elder law attorney and a tax professional. The proceeds from the sale of the investments will be added to your income, which can have some unintended consequences. For example, it could push you into a higher tax bracket, thereby losing some of the benefit of the zero-percent tax rate. It could also affect eligibility for Medicaid or cause previously non-taxed Social Security benefits to be taxed.

If you would like to discuss estate planning or asset protection planning in light of this new tax break, please give us a call.

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About Evan H Farr, CELA, CAP

Evan H. Farr is a 4-time Best-Selling author in the field of Elder Law and Estate Planning. In addition to being one of approximately 500 Certified Elder Law Attorneys in the Country, Evan is one of approximately 100 members of the Council of Advanced Practitioners of the National Academy of Elder Law Attorneys and is a Charter Member of the Academy of Special Needs Planners.

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