Almost everything you own and use for personal or investment purposes is a capital asset. Capital assets include a home, vehicle, stocks and bonds. When a capital asset is sold, the difference between the amount you paid for the asset and the amount you sold it for is a capital gain or capital loss.
Capital gains and losses classified as long-term or short-term, depending on how long you hold the property before you sell it. If you hold it more than one year, your capital gain or loss is long-term. If you hold it one year or less, your capital gain or loss is short-term.
If you have long-term gains in excess of your long-term losses, you have a net capital gain. The tax rates that apply to a net capital gain are generally lower than the tax rates that apply to other income. For 2011, the maximum capital gains rate for most people of 15%. For lower-income individuals, the rate may be 0% on some or all of the net capital gain.
The Tax Relief Act of 2010 extended the zero tax rate on qualified capital gains and dividends through 2012.
Without the extension, the maximum rate on qualified dividends would have risen to the tax rates on regular income as high as 35 percent, while net capital gain would have risen to 20 percent, starting in 2011.
Under the new law you will be allowed to receive dividends and take profit on the sale of long-term assets you've owned and pay no tax until they push you into the 25% tax bracket. To qualify for the zero rate you must have owned the assets over a year and be in the 10% or 15% tax brackets.
For 2011, the 25% tax bracket starts at taxable incomes greater than $69,000 for married and $34,500 for single filers. When your taxable income exceeds these amounts, your dividends and long-term capital gains will be taxed at 15%. The 28% rate for collectibles and the 25% rate for recaptured 1250 gain remain uncharged after 2010.
