Posts Tagged IRS
How To Escape Capital Gains Tax
Taxpayers are usually terrified of the word “capital gains.” You can define capital gains as the profits you gain from the sale of an asset. As per capital gains tax law, you have to pay taxes on the profits you make when you sell an asset. You can make a capital gain on assets such as land, stocks, or bonds. On the other hand, if you made a loss on a piece of property, it is considered to be a capital loss for which you get a tax deduction.
A clause in the capital gains tax law permits you to avoid paying capital gains tax even if you make a huge profit while selling an asset. Real estate in one area in which you can dodge capital gains tax. Real estate is known to be a very profitable venture; its price never goes down as long as you own it. The good news is that IRS has enabled tax payers, who invest in real estate, to avoid paying taxes on the profits they make on it.
How Can You Take Advantage of the 0% Capital Gains Rate?
The capital gains rate for certain taxpayers will drop to 0% for tax years 2008 through 2010. How can you take advantage of this 0% capital gains rate?
First, let’s review the capital gains rate in general.
Gains from sales of personal investments held for more than 12 months generally are taxed at the capital gains rate which is 5% or 15%. The 5% capital gains rate is available only to those whose ordinary income is taxed at 15% or less. The 15% capital gains rate will remain effective through 12/31/10 (barring any changes to the law prior to that time). The 5% capital gains rate will continue through 12/31/07; then the rate drops to 0% for tax years 2008 through 2010.
The 15% income tax brackets will be higher in 2008 as the IRS makes its annual adjustment for inflation, which will be announced later this year. However, to get an idea of who may qualify for the 15% and under brackets, currently in 2007 a married couple filing jointly must have taxable income (which remember is all of the taxpayer’s income less their itemized deductions) of no more than $61,300; and for a taxpayer with a filing status as single, the cutoff is $30,650.
The IRS & Madoff Investors: “Theft Losses” (Ponzi Schemes)
On 3/17/09, IRS Commissioner Doug Shulman told the Senate Finance Committee:
“. . . Thousands of Taxpayers have been victimized by dozens of fraudulent investment schemes. These too-good-to-be-true investment uses have often taken the form of so-called “Ponzi schemes” (i.e., the fraud perpetrator promises investments returns, some or all of which are fictitious) . . . The Madoff scandal has affected a very large and diverse pool of Investors, some of whom are reported to have lost most of their life savings . . . To help provide clarity and to assist Taxpayers the IRS is today issuing guidance articulating the tax rules that apply and providing “safe harbor” procedures for Taxpayers who sustained losses in certain investment arrangements discovered to be criminally fraudulent.”
In response, the IRS issued Rev. Rul. 2009-9, Rev. Proc. 2009-20 which allows Investors, defrauded by “Ponzi schemes” (including Madoff’s “Ponzi scheme”) to claim an IRC §165(e) theft loss deduction (i.e., ordinary loss deductions not a capital loss deduction for their “qualified investment” (Rev. Proc. 2009-20, Sec 2.06).